Stocks tumble as liquidity concerns rattle investors
Print Edition
SHANGHAI stocks tumbled yesterday, with the key index falling the most in a month, as concerns over tight liquidity and economic growth intensified.
The market was also affected by the looming registration-based initial public offering system, which investors believe will lead to an increase in new listings and thus dilute existing shares.
The benchmark Shanghai Composite Index breached several technical supports and dropped 6.4 percent to settle at 2,741.25 points, the biggest daily slump since January 26.
That almost ate all the gains since the market reopened after the Spring Festival holiday and extended losses this year to 23 percent.
Small-cap shares were the most hit.
The Shenzhen Component Index fell 7.3 percent while the ChiNext index, a gauge of the Nasdq-style growth board, slipped 7.6 percent.
A total of 1,461 stocks on the Shanghai and Shenzhen markets hit the daily loss limit of 10 percent with brokerages and property developers among the biggest losers.
Analysts cited profit taking following continuous gains, tighter liquidity, worries about the freer IPO system and concerns over the economy as the main drivers of yesterday’s slump.
“With concerns still intense over the slowing down China economy and current market expectations for the local economy to print growth narrowly above 6 percent in 2016, it is natural that investor sentiment toward the stock markets is remaining on edge,” said Jameel Ahmad, chief market analyst at foreign exchange broker FXTM.
“There are also additional concerns that are emerging fast and strong around capital outflows, which is a further threat to investor sentiment,” Ahmad added.
UBS economist Wang Tao said investors are worried that China might be running out of policy options after a period of significant and rapid credit expansion following the global financial crisis and years of propping up growth.
“Indeed, growth has continued to slow despite material fiscal and monetary easing; recent rapid credit expansion has yielded less than impressive results; and more recently elevated capital outflows and swelling depreciation pressures could potentially further constrain China’s policy options,” Wang wrote in a note.
China’s overnight repurchase rate increased 23 basis points to 2.25 percent yesterday, data from the National Interbank Funding Center showed.
A total of 960 billion yuan (US$148 billion) reverse repurchase agreements are due to mature this week, draining liquidity from the market, said the China Securities Journal.
“As the open market operations conducted earlier by the central bank expired, the sudden hike of short-term borrowing rates in interbank market indicated a tight liquidity condition, adding pressure to the stock market,” said Yang Liu, an analyst with Zhongtai Securities.
Investors were also anxious about the registration-based IPO system. China’s top legislature in December approved a proposal to reform the country’s share sale system, authorizing the government to implement the changes to the system as early as the start of next month.
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