Chinese stocks underperformed badly Friday as panicked investors rushed to sell over fears that an extended bull market was coming to an end. Elsewhere, stocks traded softly as the standoff between Greece and its international creditors appeared little closer to being resolved.
In Europe, the FTSE 100 index of leading British shares was down 0.7 percent at 6,784, while Germany's DAX fell 0.2 percent to 11,454. The CAC-40 in France bucked the trend, trading 0.2 percent higher at 5,049. Wall Street was poised for a steady opening with Dow futures and the broader S&P 500 futures up 0.1 percent. "While these deadlines can quite often be taken with a pinch of salt, Greece has literally run out of time on this occasion," said Craig Erlam, senior market analyst at OANDA. "If we see a Greek deal then there will be cause for celebration while no deal could create panic." While Greece has been the main driver in financial markets over recent weeks, worries over China have risen up the list of concerns. On Friday, Chinese stocks plunged. After a sizzling rally that more than doubled Shanghai's benchmark index over the past year, investors are now heading for the exit. One factor appears to be authorities tightening rules on margin financing, which involves using borrowed money to buy stocks. The market's drop may also be exacerbated by the herd mentality of retail investors, who play an outsize role in China's markets, or by margin investors being forced to sell off to meet margin calls.
"Although I continue to be optimistic about the longer-term trend of the China markets, it's clear that we are in a sharp correction phase," said Bernard Aw of IG Markets in Singapore. He said up until Thursday, $1.2 trillion had been wiped off of China's equity markets since they peaked June 14 at $10 trillion.
The Shanghai Composite Index in mainland China plunged 7.4 percent to close at 4,192.87, bringing its losses for the week to 12.4 percent. The smaller Shenzhen Composite Index tumbled 7.9 percent to 2,502.96. Chinese worries dented sentiment across Asia, particularly in Hong Kong, where the Hang Seng index ended 1.8 percent lower at 26,663.87.