Chinese shares plunged more than 8 percent yesterday after the nation’s securities regulator imposed margin trading curbs on three major brokerages, a sign that authorities are trying to rein in the market’s big gains.
The Shanghai Composite Index was down 8.3 percent at 3,096.64. Its dive rubbed off on Hong Kong, where the Hang Seng was down 2.1 percent at 23,605.00. Japan’s Nikkei 225 rose 0.9 percent to 17,014.29 and South Korea’s KOSPI gained 0.8 percent to 1,902.62. Australia’s S&P/ASX 200 Index rose 0.2 percent to 5,309.10. Shares were also higher in Taiwan, New Zealand and Southeast Asia.
The China Securities Regulatory Commission on Friday imposed curbs on margin financing, or borrowing to purchase stocks, following an investigation of the industry. The three affected brokerages, Citic Securities Co (中信證券), Haitong Securities Co (海通證券) and Guotai Junan Securities Co (國泰君安證券), were forbidden to lend money and shares to new customers for three months after they were allegedly caught extending margin trading contracts in violation of regulations.
The Shanghai Composite has surged almost 60 percent in the past year. Investors fear regulators believe prices have risen too much recently and might impose more curbs.
Kingston Securities (金利豐證券) executive director of research Dickie Wong (黃德几) said regulators want to tamp down some of the riskier financing practices underpinning an astonishing surge in the Chinese stock market that began half a year ago.
“The recent bull market is mainly driven by margin financing,” Wong said. With the rally “overdone,” regulators want to “simply give pause” to the brokerages.
Chinese regulators allowed margin financing and short-selling only in recent years and many Chinese investors might still be unaware of the risks involved, Wong added.
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