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China stock markets continue nosedive as regulator warns of panic China stock markets continue nosedive as regulator warns of panic
(about 2 hours later)
Chinese stock markets tumbled again on Wednesday as investors shrugged off a series of support measures by Chinese regulators, including the central bank’s first public statement in support of the market since it cut interest rates in late June.Chinese stock markets tumbled again on Wednesday as investors shrugged off a series of support measures by Chinese regulators, including the central bank’s first public statement in support of the market since it cut interest rates in late June.
The CSI300 index slumped more than 7% at the open and was down 4.8% at 3,739.18 points by 2.08am GMT. Minutes after opening, the Shanghai Composite Index fell by just over 8%. while the Shenzhen Component was down almost 5%.
The Shanghai Composite Index dropped 8% and was down 4.7% at 3,551.13 points by mid-morning. Within ten minutes of trading, more than 1,000 shares across China’s two stock markets had dropped by the daily limited of 10% and had their shares automatically suspended. About 1,400 companies, or more than half of those listed – filed for a trading halt in an attempt to prevent further losses.
Both indexes have slumped some 30% from mid-June peaks. At current average rates of decline, both indexes could give up all their yearly gains as soon as next week. China’s securities regulator said there was “panic” in the stock market with irrational selling off increasing and “leading the stock market to a situation of intense liquidity”.
In an unprecedented move, 660 companies requested that their shares be suspended while many more had their shares suspended after their value dropped by the allowed floor of 10% and their shares were automatically suspended. The People’s Bank of China said it was assisting China’s Securities Finance Corporation (CSFC), the national margin trading service provider, to acquire liquidity in an effort to steady the stock market.
China’s central bank said this morning that it would support China Securities Finance Corp to buy shares of smaller companies to steady the stock market. It said it would do this through measures such as inter-bank lending, mortgage financing and floating financial bonds. It said it would keep a close watch on the market and continue to support the CSFC and guard against systematic and financial risks.
It also eased rules for insurance companies to invest in the stock market, allowing them to invest up to 10% of their assets in a single blue chip, up from the previously allowed 5%. A spokesperson for China Securities Finance Corporation also said it would purchase more shares of small- and medium-size listed companies. It is these companies that have suffered the biggest losses.
In a statement this morning, China’s securities regulator said there was “panic” in the stock market with irrational selling off increasing and “leading the stock market to a situation of intense liquidity”.
China stock futures pointed to further losses.
Losses on the mainland also weighed heavily on Hong Kong shares, with the Hang Seng Index down 3.3% and shares of Chinese companies listed in the city falling 4.2%.
As the markets opened, only 11% of companies on the two key mainland markets were still trading.
Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to “lock in the value for the collateral”.Christopher Balding, a professor of economics at Peking University said that while it was not possible to know exactly why so many companies had suspended trading, a large number were doing so because they had used their own stock as collateral for loans and they want to “lock in the value for the collateral”.
“Today is all about China, with Greece in the background now that it’s been given a new deadline,” said Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo. Ayako Sera, a senior market economist at Sumitomo Mitsui Trust Bank in Tokyo, said: “Today is all about China, with Greece in the background now that it’s been given a new deadline.”
“Shanghai’s early losses were like a cliff-dive, which had a huge impact on investor sentiment.”“Shanghai’s early losses were like a cliff-dive, which had a huge impact on investor sentiment.”
Previous measures taken over the weekend by the Chinese government in an attempt to stabilise the markets appeared to have been unsuccessful. Analysts said the falls looked set to continue. Balding said: “I don’t see it getting better. There is not going to be a turn around within the next week or two.”
“It probably has a long way to go. Margin loans basically rose much faster and they are not falling nearly as fast, margin debt is not falling nearly as fast as the market is falling. What that is telling us is that there is a lot of stock that needs to be sold that hasn’t been sold yet.”
China’s stock markets had previously been among the top-performing in the world, and had hit a seven-year peak in the middle of June. The Shanghai stock market had surged more than 150% in 12 months, but it has fallen 30% over the past three weeks – including a plunge of 12% last week.
Unlike most other stock markets, where investors are mostly institutional investors, in China, 80% of investors are small retail investors. This is a concern for the Chinese government because it causes a “political risk”, according to Balding. The losses on the stock markets are going to cause a lot of people to lose money causing the government to “worry about people protesting on the streets”, he said.