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Chinese shares plunge, extended recent sell-off
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Chinese shares closed heavily down Monday after a rollercoaster ride, extending losses from the past two weeks despite a surprise interest rate cut at the weekend, with warnings of further volatility ahead.
The benchmark Shanghai Composite Index dived 3.34 percent, or 139.84 points, to 4,053.03 on turnover of 904.2 billion yuan (US$147.8 billion).
The index saw a swing from gains to losses of 10 percent, rising 2.5 percent in early trade before at one point losing as much as 7.58 percent and falling below the symbolic 4,000-point mark.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, plummeted 6.06 percent, or 151.56 points, to 2,351.40 on turnover of 631.2 billion yuan.
The slump put Shanghai firmly into bear territory alongside Shenzhen, with the main market down 21.5 percent from its peak on June 12, little more than two weeks ago.
“You’d think you wouldn’t see this volatility in such a large equity benchmark,” Ankur Patel, chief investment officer at US-based R-Squared Macro Management told Bloomberg News.
“The flows in and out have been so substantial and it’s been driven by retail investors. Those are the same characteristics you see in penny stocks.”
The correction will "probably last longer", Haitong Securities analyst Zhang Qi told AFP, adding it had not been "long enough" so far.
When Shanghai peaked on June 12 it had risen more than 150 percent over the previous 12 months, partly fuelled by margin trading -- in which investors borrow cash to invest in stocks.
Analysts say the past fortnight's falls were mainly triggered by new restrictions on margin trading and accelerated by growing concern that stocks were overvalued.
- 'Mixed signals' -
On Saturday China's central bank announced interest rate cuts of 0.25 percentage points and reduced some reserve requirement ratios -- limits on the amounts banks can lend -- by 0.50 percentage points.
But the move did not arrest the declines of the previous two weeks.
"We have to bear in mind that the interest-rate cut is the fourth in eight months, so the perceived implication of a rate cut on equity markets may have waned," said Bernard Aw, a Singapore-based strategist at IG Asia.
"The market may be receiving mixed signals on what exactly the PBoC hopes to achieve with its rate cut."
Regulators were considering suspending initial public offerings to stabilise the markets, Bloomberg News quoted people familiar with the matter as saying.
Initially both Chinese exchanges opened higher on Monday, even as Greece imposed capital controls with its debt crisis threatening a possible eurozone exit.
But then the downward momentum resumed, followed by a recovery in mid-afternoon, and then another drop.
Monday's official China Securities Journal carried a speech given by the paper's party secretary and editor-in-chief Wu Jincai that claimed Chinese stock markets are set to enjoy a "golden time" that will last for more than three decades.
"As the luckiest generation in the history of the Chinese nation, we are honoured to witness the great Chinese national rejuvenation -- the realisation of the Chinese dream," Wu said.
"During the process, a golden time that will last for more than 30 years will be generated in China's capital market."
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