Shares in biggest drop since 2007
Print Edition
SHANGHAI stocks saw their biggest slump in eight years yesterday as investors questioned the sustainability of a government-triggered rebound while weak economic data added to market woes.
The benchmark Shanghai Composite Index plunged 8.48 percent, the biggest daily decline since February 2007, to 3,725.56 points. A wide sell-off across the Shanghai and Shenzhen bourses dragged nearly 1,800 stocks down by the daily limit of 10 percent.
Zhang Xiaojun, spokesman for the China Securities Regulatory Commission, told reporters last night that the commission will continue to focus on stabilizing the stock market, adding that the China Securities Financial Corporation will buy more stocks at proper times.
PetroChina Co, the biggest stock by market value, dropped 9.6 percent to 12.37 yuan (US$2). Brokerages led the decline in financials, with CITIC Securities tumbling 10 percent. Bank of China fell 7.6 percent to 4.63 yuan.
Smaller shares also suffered. The Shenzhen Component Index was down 7.59 percent to 12,493.05 points yesterday.
Analysts said investors chose to lock in profits as the market had rebounded more than 20 percent since the government unveiled measures to prevent a free fall in China’s highly leveraged stock market.
“The market is due for a technical correction after continuous gains,” said Zuo Qiming, an analyst with Minsheng Securities. “However, fragile investor sentiment due to the recent market rout and growing uncertainty about whether the government will continue to prop up the market has amplified the correction.”
There is concern that the government will scale back support measures after reports that the International Monetary Fund had urged China to reduce its intervention in the market. The IMF is said to have told the Chinese government that while interventions in general are appropriate to prevent major disorder, prices should be allowed to settle through market forces.
Poor economic figures have drawn attention to weak fundamentals. Profits made by China’s industrial firms fell 0.3 percent in June year on year, the National Bureau of Statistics said yesterday, reversing the expansion of 0.6 percent in May and April’s increase of 2.6 percent.
Nomura Securities attributed the slowdown partly to an equity market sell-off in June as industrial firms are key investors in the stock market and said the negative impact from cooling financial markets will continue in the second half of the year.
The weak data followed a preliminary index released last Friday indicating manufacturing may hit a 15-month low in July.
Despite the economic weakness, analysts think it unlikely that easing monetary policies will be maintained.
“China’s inflation is likely to accelerate in the second half of the year on surging pork prices. That would limit the government’s room for monetary easing,” said Sun Jianbo, a strategist with China Galaxy Securities.
Foreign investors also withdrew funds from China’s stock market.
Data from the Hong Kong Exchanges and Clearing Ltd showed overseas investors sold 148 million yuan of mainland shares yesterday through the Shanghai-Hong Kong Stock Connect, a trading link allowing overseas investors to trade in yuan-denominated A shares.
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