China Share Markets Sink by 6.4%, Likely to Spread Woes

Chinese stock markets slumped by 6.4% on Tuesday (Jan. 26), dragging down other Asian share indexes. The impact is likely to be felt on European and North American bourses later in the day, as pre-market indicators trend lower.

Even after rallies on Friday and Monday, Chinese shares are down some 18% so far this year.

Causing the weakness for prices were global issues, notably the weakness in the oil price, rather than specifically Chinese problems. But worries that the global economy is weakening can only be bad news for China, as the world’s second largest economy.

The weakening of the Chinese currency, repeated stock turmoil, and fumbled government responses has led to over $1 trillion of capital to leave China in the last year, according to latest reports.

The depreciating currency makes overseas acquisitions attractive to Chinese firms – such as Wanda’s $3.5 billion purchase of Legendary Entertainment, and Perfect World Pictures’ expected slate financing deal with Universal Pictures – but it also makes such deals harder to close.

The Shanghai Composite Index was down 6.43% at 2749.79 on Tuesday. Hong Kong’s Hang Seng Index was dragged down 2.3% as well at 18860.80. In terms of price to earnings ratios, Hong Kong stocks are approaching their historical lows.

Media shares on mainland Chinese markets were battered. Huayi Brothers was down 9.98% at RMB26.61. Wanda Cinema Line was down 10% at RMB78.05. DMG Yinli was down 10% at RMB27.45. One notable exception was Perfect World Pictures, which was up by 10% for the third day in a row, finishing Tuesday at RMB33.86.

Hong Kong-traded stocks were somewhat calmer. Fosun International was down 3.05% at HK$9.87. Alibaba Pictures Group was down 1.81% at HK$1.63. IMAX China was down 1.79% at HK$49.45.

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