Wall St’s collapse strikes Asia, China stock indexes lose 6%

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TOKYO (Reuters): Asian shares sank on Friday, with Chinese equities on track for their worst day in two years, as fears of higher U.S. interest rates shredded global investor confidence.

There was limited immediate market reaction to the U.S. government staggering into another shutdown after Congress missed a Thursday midnight deadline to renew funding.

S&P mini futures retained modest gains and were last up 0.4 percent.

Spreadbetters expected Europe markets to start lower, forecasting an 0.8 percent drop for Britain’s FTSE, and declines of 0.2 percent for Germany’s DAX and France’s CAC.

On top of pressure from the drop in global shares, Chinese equities were weighed down as investors sought to stay liquid ahead of the Lunar New Year holidays and pressure was felt to meet rising margin calls.

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The Shanghai Composite Index tumbled 6.0 percent to its lowest since May 2017, and the blue chip CSI300 index dived as 6.1 percent. Both indexes were on track for their largest single-day losses since February 2016.

Frank Benzimra, head of Asia equity strategy at Societe Generale in Hong Kong, said Chinese shares slid mostly because of the U.S. correction but he had some China-specific worries.

He said he now is neutral on China equities “due to two concerns: valuations on China-consumer related industries and execution risks on deleveraging (more specifically financial deleveraging)”.

Japan’s Nikkei shed 2.9 percent, en route for a weekly loss of 8.6 percent – its biggest since February 2016.

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