Chinese crash fears heighten as shares slump by over 8.5pc
Doubts rise as government fails to steady nervy markets
Chinese shares slid more 8.5pc yesterday as an unprecedented government rescue plan to prop up markets ran out of steam, throwing Beijing's efforts to stave off a deeper crash into doubt.
Major indices suffered their largest one-day drop since 2007, shattering three weeks of relative calm in China's volatile stock markets since Beijing unleashed a barrage of support measures to arrest a slump that started in mid-June.
"The lesson from China's last equity bubble is that, once sentiment has soured, policy interventions aimed at shoring up prices have only a short-lived effect," wrote Capital Economics analysts in a research note reacting to the slide.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen tumbled 8.6pc to 3,818.73 points, while the Shanghai Composite Index lost 8.5pc to 3,725.56 points.
China's market gyrations have stoked fears among global investors about the broader health of the world's second biggest economy, hitting prices of growth-sensitive commodities such as copper, which fell yesterday to not far off a six-year low.
The low rate of stock ownership by Chinese households and a disconnect between valuations and economic fundamentals mean the impact on the economy is likely to be less than in other markets.
Stocks fell across the board yesterday, with 2,247 companies falling, compared to 77 gainers.
More than 1,500 shares listed in Shanghai and Shenzhen dived by their 10pc daily limit, led by heavyweights including China Unicom, Bank of Communications and PetroChina.
All traded index futures contracts also fell by their maximum 10pc limit, with the exception of a few tracking the large cap SSE50 index, which declined around 9pc.
Some analysts said talk had circulated among traders that the China Securities Financial Corporation (CSFC) had returned ahead of schedule some of the loans it took to stabilise the stock market, highlighting investor concern that Beijing's commitment to supporting prices may be flagging.
The CSFC became the regulator's weapon of choice earlier this month, borrowing money from commercial banks to buy shares in Chinese stocks. That helped indices jump around 20pc from their recent low, until Monday's renewed decline.
The CSFC did not respond to calls requesting comment.
Yesterday's fall accelerated sharply in the afternoon, long after investors had digested lacklustre data on profits at Chinese industrial firms and a disappointing private factory sector survey on Friday.
But Chinese stock investors have been celebrating bad news for months on the basis it would provoke more aggressive policy easing, seen as positive for stocks because it pushes cheap money into the market.
"After two weeks of steady rebound, both foreign investors and domestic institutions are gradually taking profits, increasing selling pressure," said Yu Jun, strategist at Bosera Asset Management. "In addition, investor confidence hasn't fully recovered. There has been no obvious increase in outstanding margin loans, while the amount of fresh capital inflows is much lower than the average level in May and June. With not enough money taking up the baton, a renewed, sharp correction is inevitable."
China's main stock indices had more than doubled over the year to mid-June, when a sudden reversal saw shares lose more than 30pc of their value in a matter of weeks.
Markets finally began stabilising again in the second week of July, after Beijing pumped liquidity into the market and banned some investors from selling.
China also cracked down on "malicious" short-sellers, froze IPOs to conserve liquidity and looked the other way as 40pc of companies suspended trading in their shares to escape the rout.
Local governments even called on investors to "defend the stock market," as did domestic media, with popular commentators expressing suspicions that the crash was engineered by a foreign cabal.(Reuters)