The Shanghai share index fell the most since early 2007 yesterday as Chinese stocks suffered a renewed sell-off despite government efforts to calm the market.
The Shanghai Composite Index closed down 8.5 percent at 3,725.56 with most of the plunge occurring in the last hour of trading.
Yesterday’s fall on the Shanghai market was the biggest one-day decline in Chinese stocks since an 8.8 percent plunge on Feb. 27, 2007, according to financial data provider FactSet.
Some analysts said the dive was sparked by brokerages restricting credit used to finance stock purchases, also known as margin trading. Chinese authorities took aggressive steps to stabilize the market after it tumbled last month, wiping away about USD3.2 trillion in market capitalization. But analysts have been skeptical that such gravity-defying efforts could be sustained.
“The continuous check on margin trading by security companies has triggered today’s sell-off,” said Xu Xiaoyu, a market strategist at China Investment Securities. “In addition, the recent economic data shows it still takes time for the economy to recover from its sluggishness.”
The dramatic 30 percent slide in Chinese shares in June came after a sizzling yearlong rally took the market to multi-year highs even as the world’s second-biggest economy slowed.
A period of stability was achieved after the government announced draconian support measures earlier this month that included forbidding major shareholders from selling any of their shares and ordering state companies and others to buy. Many companies also voluntarily suspended trading in their stocks on the Shanghai exchange and its smaller counterpart in Shenzhen.
Yating Xu, an economist at IHS Global Insight, said Beijing will likely feel renewed pressure to take more measures to put a floor under the stock market.
The Shanghai benchmark had risen about 150 percent by the time it peaked in early June. The gains were originally fired by commentary in state media that called the stock market undervalued. That led investors to believe the government would ensure that stock prices gained. Many small investors jumped into the market near its peak and are now sitting on significant losses.
The Chinese sell-off ruffled other markets in Asia though scant foreign investment in Chinese shares limits the ripple effects outside of Hong Kong.
Hong Kong’s Hang Seng shed 3.1 percent at 24,288.54 and Japan’s Nikkei 225 dropped 1 percent to 20,350.10. South Korea’s Kospi fell 0.4 percent to close at 2,038.81. Stocks in Southeast Asia were lower. But Australia’s S&P/ASX 200 gained 0.4 percent to 5,589.90.
Asian stocks had already started the week on a dour note, rattled by a last week’s report on Chinese manufacturing that sparked a sell-off in gold as well as copper and other commodities.
Prices of copper and gold hit their lowest levels in several years following the survey that showed China’s manufacturing contracted in July. Yesterday, the price of gold bounced back from a five-year low but other metal prices lost more ground.
A drop in China’s industrial profits for a second straight month in June has also added to signs that stimulus efforts are taking time to take hold in the world’s No. 2 economy. Youkyung Lee, Business Writer, Seoul, AP
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