China shares dive as regulators clamp down on margin trading 

An investor holds his head as he monitors stock prices at a brokerage house in Fuyang in central China’s Anhui province yesterday

Chinese shares plunged about 8 percent yesterday after the country’s securities regulator imposed margin trading curbs on several major brokerages, a sign authorities are worried about the market’s big gains. Other markets in Asia and Europe were mostly higher.
KEEPING SCORE: The Shanghai Composite Index dived 7.7 percent to close at 3,116.35, giving investors a wild ride after a year of surging prices despite slowing economic growth; at its nadir, the index was down 8.3 percent. For the past three months, the index is still up 32 percent. Its dive rubbed off on Hong Kong where the Hang Seng was off 1.5 percent at 23,738.49. In Europe, Germany’s DAX rose 0.6 percent to 10,225.72 and Britain’s FTSE 100 added 0.4 percent to 6,574.95. France’s CAC-40 edged 0.1 percent higher to 4,382.02. Wall Street is closed for a public holiday.
CHINA CURBS: The China Securities Regulatory Commission imposed curbs late Friday on margin financing, or borrowing to purchase stocks, following an investigation of the industry. The three affected brokerages, Citic Securities Co., Haitong Securities Co. and Guotai Junan, were forbidden to lend money and shares to new customers for three months after they allegedly were caught extending margin trading contracts in violation of the rules. The Shanghai Composite has soared almost 60 percent in the past year. Investors fear regulators believe prices have risen too much recently and might impose more curbs.
THE QUOTE: Dickie Wong, executive director of research at Kingston Securities in Hong Kong, said regulators want to tamp down some of the riskier financing practices underpinning the mainland Chinese stock market’s astonishing surge. With the rally “overdone,” regulators want to “simply give pause” to the brokerages, he said. “The recent bull market is mainly driven by margin financing.” Mainland Chinese regulators allowed margin financing and short selling only in recent years and Wong said many mainland investors may still be unaware of the risks involved.
A SIGN OF BIGGER PROBLEMS: It shows problems on several levels. Stock markets should allow investors to discover the fundamental value of companies, and although all markets are prone to under- and overshooting due to herd psychology, China’s market is particularly off-course. That’s partly because it is dominated by opaque state-owned companies. In their relatively short history, China’s stock markets have fluctuated in ways that bear no relation to economic reality. Its latest problem is that debt has fueled the recent rise in stock prices. There are also signs of debt-related stress in other parts of China’s economy including property, which is undergoing a painful government-instigated slowdown. One developer, Kaisa Group, recently missed a USD23 million interest payment on a bond abroad, alarming investors.
MORE CHINA, ECB: Investors are awaiting China’s economic growth data due today, which is likely to show a further slowdown in the fourth quarter, and are also anticipating possible stimulus moves by the European Central Bank. Markets generally settled down after volatility provoked by the Swiss central bank’s shock decision Thursday to untether the Swiss franc from the euro. Japan’s central bank is not expected to make any major moves in a policy meeting that wraps up Wednesday.
ASIA SCORECARD: Japan’s Nikkei 225 rose 0.9 percent to 17,014.29 after a government report showed rising consumer confidence. South Korea’s Kospi gained 0.8 percent to 1,902.62. Australia’s S&P/ASX 200 rose 0.2 percent to 5,309.10. Shares were also higher in Taiwan, New Zealand and Southeast Asia.
ENERGY: Benchmark U.S. crude was down 66 cents at USD48.03 a barrel in electronic trading on the New York Mercantile Exchange. The contract jumped $2.44 on Friday to settle at $48.69. Brent crude, a benchmark for international oils, fell 57 cents to $49.61 a barrel in London. Elaine Kurtenbach Business Writer, Tokyo, AP