Further Risk in Chinese Stocks?

After halting the two-day losing streak on Monday that cost it nearly 120 points or nearly 5 percent, the China stock market turned back to the downside on the following day,  giving up support at 2,400 points while falling to a 20 month closing low. Now analysts say that the Shanghai Composite Index could dip further still on Wednesday, possibly sliding below 2,300 points.

The global forecast doesn't provide much in the way of guidance as a modest rise in oil prices was offset by slightly better than expected economic data out of the United States. Also, the minutes from the most recent FOMC meeting held no surprises, leaving Wall Street with few catalysts en route to a mixed finish. The Asian markets are projected to post a flat performance, with commodity-rich bourses inching perhaps slightly higher.

The SCI finished sharply lower again on Tuesday, with sentiment damaged by the continued lack of government confirmation of any initiatives to help the economy. The financial stocks fell under heavy selling pressure throughout the session, while the airlines and oil refiners also finished significantly lower.

For the day, the index lost 63.29 points or 2.62 percent to close at 2,350.08 after trading between 2,327.22 and 2,403.02 on turnover of 31.33 billion yuan. The Shanghai A-share Index lost 66.14 points or 2.61 percent to close at 2,467.29, while the Shenzhen A-share Index was down 28.54 points or 4.04 percent to finish at 677.54.

Among the decliners, China Life Insurance fell 0.87 percent, while China Unicom declined 3.73 percent, Haitong Securities tumbled 7.79 percent, Changjiang Securities plunged 7.24 percent, China Petroleum & Chemical Corp (Sinopec) fell 0.89 percent, PetroChina dropped 1.76 percent, China Southern Airlines slumped 7.18 percent, Bank of Beijing fell 1.86 percent and China Railway Construction Corp lost 3.90 percent.

Bucking the trend, China Vanke rose 1.02 percent, Poly Real Estate Group was up 0.66 percent, China Minsheng Banking rose 1.36 percent and China CITIC Bank gained 4.11 percent. Wall Street provides a flat lead as stocks traded with a lack of direction throughout the entire session on Tuesday, unable to sustain any notable moves in either direction. An increase in oil prices offset positive sentiment from better than expected numbers on consumer confidence.

A rise in oil prices weighed on the markets throughout the session, as traders expressed concern that Hurricane Gustav could cause problems for the Gulf of Mexico's oil region. Light sweet crude for October delivery closed at $116.27 a barrel, up $1.16 for the session. Gustav, currently a category 1 hurricane that has sustained winds around 90 miles per hour, reached landfall in Haiti on Tuesday afternoon. The storm is expected to pick up steam again as it heads towards Cuba on Wednesday and the Gulf of Mexico over Labor Day weekend.

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