China Stocks Extend Sell-off

Chinese share markets extended a bruising selloff on Friday after the previous day’s plunge, while the dollar took a breather from a sharp run up this week.  The slide in China forced Asian markets off earlier gains, with the MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS flat. It shed more than 1 percent on Thursday. South Korean share gained 0.4 percent and Australian stocks rose 1.2 percent. Japan’s Nikkei .N225 was flat.

In choppy trade, the Shanghai Composite Index .SSEC was down 3.9 percent after diving nearly 7 percent on Thursday, when investors dumped stocks after more brokers tightened margin trading requirements and the central bank drained money to reduce flush liquidity in the financial system.  “Although numerous triggers have been proposed for Thursday’s nearly 7 percent fall in the Shanghai Composite, none of these seem likely to have had a large enough impact on fundamentals to explain such a sizable move,” economists at Capital Economics wrote.

“Instead, it was probably driven by a wild swing in sentiment. With valuations divorced from economic fundamentals, the heightened volatility we have seen is likely to continue.”  Mixed signals from the ongoing Greek debt talks were another signal to investors to remain cautious.