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China worries take Asian shares on a roller-coaster ride

An investor watches the stock market at a stock exchange hall in Nanjing, China.
ChinaFotoPress via Getty Images
An investor watches the stock market at a stock exchange hall in Nanjing, China.

Asian share markets went on a roller-coaster ride on Wednesday amid persisting concerns over the health of China's economy.

However, the S&P 500 futures and Dow futures advanced 1.1 and 0.9 percent respectively in Asian trade, suggesting that some calm could return to markets later in the global day.

Wall Street ended in correction territory overnight, with the major averages closing down nearly 3 percent in their third-largest daily decline for 2015. In their worst start to September in 13 years, the Dow Jones Industrial Average and S&P 500 had their worst first-of-the-month trading day of a month since March 2009. The tech-heavy Nasdaq had its worst first trading day since October 2011.

The steep declines on U.S. markets came after two surveys of China's mammoth manufacturing sector disappointed traders on Tuesday, exacerbating a sell-off in Asian and European stock markets. The official manufacturing purchasing managers' index (PMI) edged down to 49.7 in August from 50 in July, while the final Caixin/Markit manufacturing purchasing managers' index (PMI) came in at 47.3 in August, above a preliminary reading of 47.1 but down from 47.8 in July.

Symbol
Name
Price
 
Change
%Change
NIKKEI
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HSI
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ASX 200
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SHANGHAI
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KOSPI
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CNBC 100
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Mainland shares choppy

Violent swings magnified in China's major stock indexes in the afternoon trading session, with the benchmark Shanghai Composite meandering between gains and losses before closing down 0.4 percent, as regulators step up rescue measures to support a wobbly stock market, albeit in a confusing manner.

Earlier in the session, the key Shanghai index fell as much as 4.6 percent to an intra-day low of 3,019.0 before a wave of buying in late-morning trade pushed up prices in many sectors. Large-cap stocks such as infrastructure plays and banks ended the session higher, amid speculation that government-backed investors intervened.

"Investors are still on an exit mode... they do not want to hold shares before a long weekend. But at the same time, the "national team" is buying in to support the index above the 3,000 level because they need a stable environment during the long weekend," Ronald Wan, chief executive, investment banking at Partners Capital International, told CNBC Asia's "Squawk Box."

Among China's other indexes, the blue-chip CSI300 ticked up 0.11 percent, while the smaller Shenzhen Composite closed down 2 percent. Markets will be closed through Monday as China commemorates the end of World War II.

Meanwhile, Hong Kong's Hang Seng index fell back into the red, down over 1 percent.

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Nine Chinese brokerages have pledged additional funds worth over 30 billion yuan ($4.71 billion) to buy shares, Reuters reported citing the China Securities Journal on Wednesday. This followed news that major Chinese brokerages such as Guotai Junan Securities are stepping up their contributions to support the stock market yesterday, according to filings on the Shanghai Stock Exchange website.

But according to Wan, the additional funds from securities firms may be "insignificant" to change the longer-term trend.

"It may have some sort of a psychological impact in terms of stabilizing the mentality of investors, but if you look at the figures, even if they contribute 25-30 billion yuan, the amount is still insignificant to the size of the stock market. Also, the brokerages have lost tremendous money previously so I'm not sure how much they can put in to stabilize the market," Partners Capital International's Wan added.

Other fresh developments include a report by the China Business News that securities regulators have urged brokerages to clean up "grey market" margin lending by the end of September. Meanwhile, the People's Bank of China (PBOC) plans to tighten rules on trading of currency forwards from mid-October, with sources telling Reuters on Tuesday that banks trading currency forwards will be required to set aside reserves from October 15.

The series of contradictory policy measures is fanning confusion among investors, who are already reeling from a stock market rout which started in mid-June due to Beijing's crackdown on margin lending.

Xavier Denis, global strategist at SG Securities, said: "The market is [concerned] more about the policy-making and a lack of clarity when it comes to policy intervention."

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Nikkei slips 0.4%

Tracking the moves in China's equity markets, Japan's benchmark Nikkei 225 index pared gains to close down as Chinese stocks fell back into the red.

Earlier in the day, the Tokyo bourse touched an intra-day low of 17,857.3 before clawing back above the flatline by mid-morning trade.

Banks, brokerage houses and export-oriented stocks turned mostly negative late in the session. Among losers, Mitsubishi UFJ Financial Group lost 1.3 percent, while Nomura Holdings eased 1.5 percent. Panasonic, Nikon and Sony dropped between 1 and 3.1 percent.

Index heavyweights helped to offset some losses; shares of Fast Retailing and Fanuc ended up nearly 2 percent each. Rail shares also provided some upward momentum, with Hankyu Hanshin Holdings and Central Japan Railway up nearly 6 and 2 percent respectively, after Barclays upgraded its ratings and target prices for the companies.

Meanwhile, Goldman Sachs' chief global equities strategist Peter Oppenheimer said investors should use the latest bout of market turmoil to accumulate stocks in Japan's stock market.

Oppenheimer is not alone; Hiroshi Ozeki, the chief investment officer of Nippon Life Insurance told Reuters on Wednesday that Japanese share prices could fall further in the near term, which will offer good bargain-hunting opportunities.

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ASX adds 0.1%

Australia's S&P ASX 200 index reversed course late in the day to finish in positive territory, despite gross domestic product (GDP) showed the economy grew at a slower-than-expected pace in the second quarter.

The economy expanded 0.2 percent on-quarter in the April-June period, taking the annual rate down to 2.0 percent from the first quarter's 2.3 percent, missing expectations for a 0.4 percent quarterly expansion and an annual rate of 2.2 percent. The Australian dollar tumbled to a fresh six-and-a-half-year low following the GDP data.

Banking shares underpinned the rebound, with Australia and New Zealand Banking and National Australia Bank up 1.3 and 1 percent, respectively.

Weaker oil prices put a chokehold on energy producers; Santos and Woodside Petroleum fell 0.8 and 1.6 percent, respectively.

Kospi flat

South Korea's Kospi index erased early losses to step slightly into positive turf late Wednesday.

Hyundai Motor and Kia Motors were the day's top performers, closing up 3.4 and 3.2 percent, respectively. The index's top weighted stock Samsung Electronics erased losses to add 0.5 percent.

Oil-related and chemical counters underperformed the bourse, with S-Oil and LG Chem easing 3.3 and 0.9 percent, respectively. Meanwhile, steelmaker Posco and Kepco closed down more than 1 percent each.