Stocks fall over market uncertainty
Print Edition
CHINESE stocks plunged more than 7 percent yesterday, with one key index recording its biggest fall since 2008, hit by tight liquidity toward the end of the second quarter and uncertainty over the central bank’s easing policy.
The market is down more than 20 percent from seven-year highs hit two weeks ago, with selling accelerated by investors rushing to unwind positions built on borrowed money, although they are divided over whether the boom has come to a bust.
Jiang Chao, a strategist at Haitong Securities, said that based on meetings with fund managers, he believed that institutions were “collectively at a loss” over the direction of the stock market.
Many people were keen to lock in profit now, rather than in the second half of the year, because they had made enough in the first half, according to Jiang.
Any crash would have major implications on China’s push to open up its financial markets, most imminently a plan to link the Hong Kong exchange with the mainland’s smaller Shenzhen bourse.
It could also have implications for the broader economy, given the high level of market participation by retail investors, though China has weapons in its arsenal if it fears too big a knock-on effect. It has previously used state funds to pick up shares on dips and eased the pace of initial public offerings.
“The foundation of the bull market has not materially changed,” Bosera Asset Management Co said.
Zhang Xiaojun, a spokesman for China’s securities regulator, told a regular news conference that recent falls in the market were just reversing “excessive gains” after a strong run-up and that the economy was showing clear signs of stabilizing despite the fall.
A slew of initial public offerings has also bloated the supply of stocks, which fell across the board yesterday.
About 2,000 of the roughly 2,800 listed companies in Shanghai and Shenzhen slumped by their 10 percent daily limit.
At the close, the key CSI300 index was down 7.9 percent, its biggest one-day percentage fall since June 2008, while the Shanghai Composite Index tumbled 7.4 percent.
Traders said the selling accelerated as it triggered margin calls, which forced investors to bail out of stocks bought on borrowed cash.
“Many of the investors I know bought stocks using margin financing, with little cash left in their accounts,” said Zhang Chen, an analyst at Shanghai-based hedge fund Hongyi Investment. “Recent slumps left them with no choice but to sell on margin calls,” Zheng said.
A more than doubling of China’s stock market over the past year had been underpinned by rapidly expanding margin financing, monetary easing and hopes of economic restructuring, but analysts said two of the three legs are now shaky.
Regulators have been cracking down on illegal margin financing and urging brokerages to tighten rules. Many investors have also faced increasingly expensive margin calls in the past week as share prices have retreated.
Outstanding margin loans shrank for the third straight day on Wednesday to 2.2 trillion yuan (US$354 billion), as investors slashed 61.5 billion yuan worth of leverage during the period, the latest data shows.
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