Sunday 23 October 2016

China stocks nosedive again as regulator warns of "panic"

Published 08/07/2015 | 07:19

An investor watches an electronic board showing stock information at a brokerage office in Beijing, China, July 7, 2015
An investor watches an electronic board showing stock information at a brokerage office in Beijing, China, July 7, 2015

Chinese stocks nosedived again today, as the country's securities regulator warned investors were in the grip of "panic sentiment" and the market showed signs of freezing up as companies scrambled to escape the rout by having their shares suspended.

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Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.

"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.

"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 4.8pc in morning trade, while the Shanghai Composite Index dropped 3.9pc. Both indexes had plunged around 8pc at the market open.

Around 30pc has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilise the real economy is now looming as a bigger risk than the euro zone crisis.

More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges today, taking total suspensions to about 1,300 - 45pc of the market - as companies scuttled to sit out the carnage.

With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a relatively modest 1.5pc.

The plunge in China's previously booming stock markets, which had more than doubled in the year to mid-June, is a major headache for President Xi Jinping and China's top leaders, who are already grappling with slowing growth in the world's second largest economy.

Beijing's interventionist response has also raised questions about its ability to enact the market liberalisation steps that are a centrepiece of its economic reform agenda.

China has orchestrated brokerages and fund managers to promise to buy billions of dollars' worth of stocks, helped by a state-backed margin finance company which the central bank pledged today to provide sufficient liquidity.

The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages.

Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.


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