By Chao Deng

Stocks fall on concerns China's slowdown is worse than expected

Asian stock markets are set to finish August with their worst monthly performance in more than three years, as shares struggle to recover from a global selloff sparked by worries over China.

A slowdown in China's economy, magnified by a surprise devaluation of the Chinese yuan earlier this month, accelerated a rout in Shanghai that spread across the globe, pushing down everything from stocks in the U.S. and Europe, to commodities and emerging market-currencies. While stability has returned in recent days in Asia, the selloff has left currencies in the region near multiyear lows and stocks at their lowest levels in months.

Also: China won't be propping up its market with big stock buys (http://www.marketwatch.com/story/china-wont-be-propping-up-its-stock-market-with-big-stock-buys-report-2015-08-31)

The Shanghai Composite Index is on track to lose 13% this month, its third straight month of declines, and a close follow to the 14% loss seen in July, which was the index's largest monthly drop since August 2009.

Share buying by Beijing -- at 900 billion yuan ($141 billion) by one estimate -- hasn't helped. Shanghai remains off roughly 40% from its June peak, just days ahead Beijing's celebration of the 70th anniversary of the end of World War II.

Chinese markets will be closed Thursday and Friday, when China will stage a parade to display its military prowess, despite a deteriorating economy.

Hong Kong's Hang Seng Index is on track to lose 12% this month, its worst monthly performance since September 2011. It is now down 25% from late April, when it hit its highest level since the global financial crisis.

The MSCI All Country Asia Pacific Index of stocks is down 7.7% month-to-date through Friday in U.S. dollar terms, its worst monthly record since May 2012. That compares with the S&P 500's 5.5% loss in the same period. The index, a benchmark, is off about 13% from its April peak.

"There's a tremendous lack of confidence in terms of [China's] policymaking," said Michael W. Parker, strategist at Bernstein Research. "The devaluation [of the yuan] has rattled confidence globally."

The yuan has fallen about 2.7% in August against the U.S. dollar, but it is expected to fall further as policy makers allow the currency to trade more in line with the market's guidance. Further weakness would pressure the currencies of neighboring countries that compete with China in the global export market, in addition to commodity exporting countries that may face weaker Chinese demand.

The region's markets also remain weak, as investors try to gauge whether recent turmoil will push back the U.S. Federal Reserve's plan to raise short-term interest rates for the first time in more than six years. A rate increase is expected to introduce more wild swings in global markets, as higher rates pressure companies that have borrowed in U.S. dollars and commodity-exporters already suffering from lower prices for coal, ores and oils. Emerging markets in Asia are seen as most vulnerable.

Australia's S&P ASX 200 is on track to lose 8.6% this month, its worst monthly performance since October 2008. The Nikkei Stock Average , down 8.2% this month, is having its worst month since May 2012.

Shares in Hong Kong, Taiwan and Indonesia fell into bear markets earlier this month, which is defined as a loss of 20% or more from a recent high.

On Friday, China shares were again leading losses, despite weekend reforms from Beijing to limit local government debt. The Shanghai Composite Index recently fell 0.8% to 3,205.99. The Hang Seng Index was up 0.4%.

A cap of 16 trillion yuan ($2.5 trillion) on local government debt (http://www.wsj.com/articles/china-places-cap-on-local-government-debt-1440928627) is Beijing's latest move to address a slowing economy increasingly burdened by heavy borrowing. The Standing Committee of China's National People's Congress imposed a 600 billion yuan limit on the direct debt local governments are allowed to run up this year, the official Xinhua News Agency said late Saturday.

Xinhua has also reported that Chinese authorities are holding a financial journalist, a regulator and four senior staff from a brokerage for suspected violation of market rules. The crackdown follows efforts earlier this summer by Chinese authorities to curb what they call "malicious short selling."

Read: China 'punishes' nearly 200 for spreading rumors (http://www.marketwatch.com/story/china-punishes-nearly-200-for-spreading-rumors-2015-08-31)

The losses in China today were expected given the large rise in Chinese stocks at the end of last week, Bernstein's Parker said. The Shanghai Composite rose 10% on Thursday and Friday amid suspected government buying.

The Nikkei Stock Average and S&P ASX 200 were each down more than 1.5% on Friday. South Korea's Kospi was down 0.4%.

Nervousness lingers in currency markets as well. On Friday, the Japanese yen, which serves as a haven asset during selloffs, strengthened 0.4% to Yen121.17 against the U.S. dollar from late Friday in Asia.

The Australian dollar was up 0.5% against the U.S. dollar compared with late Friday in Asia. But the South Korean won and Indonesian rupiah each weakened about 0.3% against the U.S. dollar.

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(END) Dow Jones Newswires

August 31, 2015 04:13 ET (08:13 GMT)

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