Another tumble for chinese shares
Print Edition
CHINESE shares took another tumble yesterday, defying government efforts to arrest a precipitous fall that has wiped an estimated US$3.2 trillion off markets and threatens the world’s second-largest economy.
Over the weekend, the government announced a halt to initial public offerings and moves to pour funds into the market to end three weeks of plunging prices.
Qi Yifeng, an analyst at consultancy CEBM, said the measures were not strong enough to reverse the downtrend, especially as it was a liquidity issue for many who had borrowed to buy shares and were now forced to sell to meet margin calls.
“It’s just a matter of whether it will fall more slowly, or continue to slump in freefall,” he said.
Exchange data shows the balance of outstanding margin loans has fallen more slowly than the market drop and that leveraging has consequently increased to a record proportion of the market, creating a vicious cycle of pressure to sell.
Global investors have grown increasingly concerned that a full-blown crash could destabilize the Chinese economy.
The benchmark Shanghai Composite Index fell 1.29 percent yesterday, or 48.79 points, to end at 3,727.12 on turnover of 776.1 billion yuan (US$126.9 billion). It was down up to 5.05 percent during the day.
The Shenzhen Composite Index, which tracks stocks on the second exchange on China’s mainland, slumped 5.34 percent, or 109.02 points, to 1,932.83 on thin turnover of 301.4 billion yuan.
There were some rises among heavyweight blue chips, which are the main beneficiaries of the government response, but most firms fell, dragging down the index.
Banks were among the biggest gainers in Shanghai. The Industrial and Commercial Bank of China gained 3.80 percent to 5.74 yuan while China Construction Bank surged by its 10 percent daily limit to 7.47 yuan.
The Agricultural Bank of China and Bank of Communications were both up almost by the 10 percent limit.
But Shandong Lukang Pharmaceutical lost its 10 percent daily limit to 9.60 yuan while Anyuan Coal Industry Group also plummeted 10 percent to 5.81 yuan.
Hong Kong equities retreated 1.03 percent, tracking the mainland sell-off with dual-listed firms’ prices tumbling in the city.
“The slumping Chinese stock market has raised concerns of systemic risks,” ANZ Banking Group said in a research note.
On Sunday, the government said the central bank would provide funds to the state-backed China Securities Finance Co to help “protect the stability of the securities market.” The China Securities Regulatory Commission also said there would be a temporary halt to IPOs, which tend to drain funds from the rest of the market, hurting prices and sentiment.
The day before, China’s 21 largest brokerages said they would invest at least 120 billion yuan in so-called “blue chip” exchange traded funds.
“Where is the promised 120 billion yuan?” asked one retail investor from Hangzhou yesterday.
“It’s all going to blue chips. Don’t they know that retail investors are all trapped in the small caps? My stocks opened up 10 percent but closed down the (10 percent) limit.”
The latest government moves followed an interest rate cut, relaxed rules on margin trading, and proposals to let the state social security funds invest in equities — which failed to arrest a near 30 percent fall over the three weeks to Friday.
Haitong Securities analyst Zhang Qi said it was hard to tell where the bottom is for the Shanghai market.
“With investors’ confidence toward the market shattered, it’s really hard to tell when it will start to stabilize and recover from recent falls,” he told reporters.
Chinese punters are overwhelmingly small, retail investors who have made bets using borrowed money through a practice called margin trading.
Under it, they only need to deposit a small proportion of the value of their trades, potentially generating bigger profits but also exposing them to bigger losses.
Lei Mao, a researcher at Warwick Business School, said yesterday: “When the government commits to splash cash in the market, stocks of large state-owned companies are raised since they would benefit the most. Since they are large cap stocks the index is also supported.
“However, most of the other stocks still fall harshly and many of them have been suspended because they fell more than 10 percent.
“And yet if the government aims to sustain a healthy market as a venue for financing, the rise of state-owned enterprise stocks are only aesthetically meaningful, since these enterprises never need any financing and they are not good investments anyway.”
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