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Samuel Shen & Brenda Goh
08 Jul 2015 12:18
Absa, Standard Bank and First National Bank in Cape Town on July 8. The rand has slumped to a new monthly low versus the dollar, influenced by weak stock markets in China. (Mike Hutchings, Reuters)
China’s tumbling stock market showed signs of seizing up on Wednesday, as
companies scrambled to escape the rout by having their shares suspended and
indexes plunged after the securities regulator warned of “panic sentiment”
Beijing, which has struggled for more than a week to bend the market to its
will, unveiled yet another battery of measures to arrest the sell-off, and the
People’s Bank of China said it would step up support to brokerages enlisted to prop
The CSI300 index of the largest listed companies in Shanghai and Shenzhen
closed down 6.8%, while the Shanghai Composite Index dropped 5.9%.
With nearly half the market on a trading halt and another round of margin
calls forcing leveraged investors to dump whatever shares could find a buyer,
blue chips that had been supported by stabilisation funds earlier in the week
bore the brunt.
“I’ve never seen this kind of slump before. I don’t think anyone has.
Liquidity is totally depleted,” said Du Changchun, an analyst at Northeast
“Originally, many wanted to hold blue chips.
But since so many small
caps are suspended from trading, the only way to reduce risk exposure is to
sell blue chips.”
More than 30% has been knocked off the value of Chinese shares since
mid-June, and for some global investors the fear that China’s market turmoil
will destabilise the real economy is now a bigger risk than the crisis in
“Also, the ripple effect from the market correction has yet to show
up,” wrote Bank of America Merrill Lynch analysts in a note.
Commodities markets reflected growing concerns about the broader health of
the world’s second largest economy, with copper prices falling to a six-year
low, Shanghai nickel futures sliding by their 5% daily limit, and oil falling
towards $56 a barrel, near a three month-low.
Trading haltsMore than 500 China-listed firms announced trading halts on the Shanghai and
Shenzhen exchanges on Wednesday, taking total suspensions to about 1 300 – 45%
of the market or roughly $2.4-trillion worth of stock - as companies scuttled
to sit out the carnage.
With so many small-cap companies sheltering on the sidelines, the ChiNext
growth board, which has seen some of the biggest swings in valuations, fell a
The plunge in China’s previously booming stock markets, which had more than
doubled in the year to mid-June, is a major headache for President Xi Jinping
and China’s top leaders, who are already grappling with slowing growth.
Beijing’s interventionist response has also raised questions about its
ability to enact the market liberalisation steps that are a centrepiece of its
economic reform agenda.
China has orchestrated brokerages and fund managers to promise to buy
billions of dollars’ worth of stocks, helped by a state-backed margin finance
company which the central bank pledged on Wednesday to provide sufficient
The securities regulator said the Securities Finance Corp had provided
260-billion yuan ($41.8-billion) to 21 brokerages.
Retail investorsUnlike other major stock markets, which are dominated by professional money
managers, retail investors account for around 85% of China trade, which
“It’s uncommon to see so many shares posting consecutive daily limit
falls, and the index futures swinging so wildly,” said Wang Feng, CEO and
founder of hedge fund firm Alpha Squared Capital and a former Wall Street
“It’s a stampede. And the problem of the market is that all the players
move in the same direction, and are too emotional.”
A surprise interest-rate cut by the central bank at the end of June,
relaxations in margin trading and other “stability measures” have
done little to calm investors.
The barrage of official commentary and new support measures continued
throughout Wednesday’s trading session, without visible effect.
Deng Ge, a spokesperson for the China Securities Regulatory Commission, said
in remarks posted on its official channel on Weibo, China’s version of Twitter,
that there had been a big increase in “irrational selling” of stocks.
Government agencies also announced that insurers would be allowed to buy
more blue chips and urged major shareholders and top executives to buy their
But the market sell-off has extended beyond the mainland, with Chinese
stocks on US exchanges falling as much as 6.1%on Tuesday, according to the Bank
of New York Mellon index of such securities.
Hong Kong’s Hang Seng Index fell 5.8%, with shares of Chinese brokerages
taking a heavy beating.
“Investors are extremely unimpressed with their sudden conscription
into national service, and you can see that in their share prices,” said
Matthew Smith, a strategist who covers the China financials sector for
Emerging stocks head for biggest drop since 2013Emerging-market stocks headed for the steepest slump in two years and currencies weakened as a deepening rout in Chinese equities spurred
concern the fallout will spread.
The ruble, the rand and South Korea’s won slid at least 0.6% versus the dollar.
Emerging Markets Index lost 2.5% to 906.74 at 9:22am in
London, its sixth day of declines, as China’s stock rout reverberated
across global markets.
A note from Investec last week said
while Greece’s negotiations with its creditors have dominated recent
headlines, “we think there is perhaps a danger of focusing too much on the world’s
oldest democracy when there are other developments in the US and China that are
likely to have a more significant and enduring impact on financial markets”.
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