Shares plummet after crackdown on margin lending
Print Edition
SHARES in China experienced their worst daily tumble in more than six years after regulators punished a number of brokerages for breaking margin lending rules and the prospect of weak GDP data signaled a warning to investors.
The benchmark Shanghai Composite Index fell 7.70 percent, or 260.15 points, to 3,116.35 on turnover of 409.9 billion yuan (US$65.9 billion). The decrease was the biggest since June 10, 2008, when the index closed down 7.73 percent.
The Shanghai Composite was the best performer among the world’s indexes last year, gaining more than 60 percent. The measure continued to advance last week, a 10th week of gains that was the longest weekly winning streak since May 2007.
The Shenzhen Composite Index dropped 3.39 percent, or 50.10 points, to 1,428.37 on turnover of 276.2 billion yuan.
After trading closed last Friday, the China Securities Regulatory Commission said it was suspending Citic Securities, Haitong Securities and Guotai Junan Securities from lending money and stock to new clients for three months.
In margin lending, investors borrow money from a broker to buy shares besides using their own for just a portion of the stock purchase.
When prices fail to repay their debt, speculative traders pull back from the stock market.
Nine other brokerages were also punished for offenses such as allowing unqualified investors to open margin finance and securities lending accounts.
The penalties raised worries that policymakers are trying to control an outstanding surge in stock purchases using borrowed money, as margin loans accumulated to 1.08 trillion yuan as of January 13 from about 400 billion yuan six months ago.
Citic said in a stock filing yesterday that it raised the minimum requirement for opening margin lending accounts to 500,000 yuan from 300,000 yuan, while Huatai yesterday released margin lending rates of 8.6 percent.
Citic Securities fell by the 10 percent daily limit to 7.09 yuan, while Haitong Securities lost 9.99 percent to 20.73 yuan.
The whole financial sector, including brokerages, banks and insurances, plunged 8.86 percent, with no company in the category making gains.
Industrial Securities said in a statement that the disturbance in margin trading will not only affect brokers but also the sectors in which borrowed money plays an obvious part, such as military products, media, building construction and nonferrous metals.
Meanwhile, market morale was beset by negative predictions of China’s yearly economic performance. The National Bureau of Statistics is due to release the official GDP figures for the fourth quarter and the whole of 2014 today.
Wang Tao of UBS said “tentatively firmer industrial production in December will unlikely reverse the downtrend of GDP” and she expected China’s GDP in the fourth quarter to be 7.1 percent.
Wang predicted 2014 would land at 7.3 percent growth, which would be the worst full-year result since 1990.
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