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November 28, 2015

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Shares tumble as crackdown widens

THREE of China’s biggest brokerages are being investigated by the market regulator for suspected “rule violations” as a crackdown on the financial sector intensified. It emerged yesterday as a massive sell-off across the board sent China stocks tumbling the most since this summer’s rout.

Meanwhile, upcoming new share sales and poor industrial data also weighed on the market.

The benchmark Shanghai Composite Index slumped 5.5 percent, the biggest daily drop since August 25, to close at 3,436 points. It narrowed from a decline as much as 6.1 percent in the afternoon session.

Smaller shares also dropped, with both the Shenzhen Component Index and the ChiNext for startups sliding more than 6 percent.

Nearly 300 stocks hit the daily 10-percent decline limit on the Shanghai and Shenzhen bourses.

Financial shares led the decline as 18 of China’s 23 listed brokerages plunged by 10 percent, dogged by fresh crackdown on irregularities in the industry.

Citic Securities Co, China’s largest stockbroker, and Guosen Securities Co said in separate filings to the Shanghai Stock exchange on Thursday night that they were under investigation by the China Securities Regulatory Commission for suspected violation of market regulations.

Haitong Securities Co, also one of the largest which suspended trading of its shares in Shanghai and Hong Kong yesterday, said after market close that it had received a notification from the CSRC over an alleged breach of securities rules.

The investigations are the latest step in a national crackdown on price manipulation, short selling and insider trading in the financial sector following a stock rout that wiped trillions of dollars off the country’s market capitalizations.

“Fresh investigations indicated the government clampdown on market malpractices is stricter than expected. It has a negative impact on investor sentiment,” said Hong Hao, managing director and chief China strategist at BOCOM International.

China has intensified scrutiny of its financial sector since the summer meltdown, bringing down several brokerage executives and officials including Yao Gang, deputy head of the CSRC.

Citic Securities President Cheng Boming is among 12 of the company’s executives named as being under investigation by the end of October. Brokerage Guotai Jun’an International Holdings Ltd said on Monday it had lost contact with its chairman.

Guosen’s president Chen Hongqiao hanged himself at home on October 23.

Cao Lingyan, analyst with Shanxi Securities, said the stock market was also dragged by a bout of profit-taking due to negative factors that included the regulator’s move to reduce stock market leverage and the resumption of initial public offerings next week when 10 will start IPO subscriptions.

The first batch of listings after the lifting of a four-month ban earlier this month is expected to lock up around 1 trillion yuan (US$156.4 billion) in funds, analysts said.

The market decline also follows dismal industrial data from the National Bureau of Statistics showing that industrial companies’ profits fell 4.6 percent in October, declining for the fifth consecutive month.


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