Chinese stocks plunged the most in four months in record turnover as brokerages tightened lending restrictions and the central bank drained cash from the financial system.
The Shanghai Composite Index tumbled 6.5 percent to 4,620.27 at the close, dragged down by financial and commodity companies.
Citic Securities Co (中信證券) shares plunged 9.4 percent after several smaller rivals increased their margin requirement, the collateral put up by an investor when borrowing.
Record growth in margin debt helped fuel a 127 percent gain in the Shanghai gauge over the past year, the most among global indexes tracked by Bloomberg.
Margin lending by brokerages exceeded 2 trillion yuan (US$322 billion) as of Wednesday, five times the level of a year earlier, stock exchange data showed.
“The whole nature of [the] China market, it’s all on leverage, all on margin trading, so margin calls will further push the market as retail investors are forced” to put up more collateral, said Michael-Douglas Lee, a Hong Kong-based trader at SG Securities Ltd.
The Shanghai index climbed as high as 4,986.50 yesterday before faltering in its bid to reach the 5,000 level for the first time since 2008.
Meanwhile, shares of Industrial and Commercial Bank of China Ltd (ICBC, 中國工商銀行) and China Construction Bank Corp (CCB, 中國建設銀行) slid at least 5 percent after the sovereign investment firm trimmed its stake in the two lenders.
Central Huijin Investment Ltd (中央匯金), a unit of China’s sovereign wealth fund, sold 3.5 billion yuan (US$565 million) of shares in the two banks in what an analyst called a turning point for state ownership reforms.
Central Huijin sold 300 million yuan-denominated shares of ICBC at an average price of 5.43 yuan each and 280 million CCB shares at 6.81 yuan apiece on Tuesday, according to Hong Kong stock exchange filings.
The sales may pave the way for the government to reduce its control of the nation’s biggest banks as part of the Chinese Communist Party’s push to open up the ownership of state companies. It also comes after a rally in China’s stock market to a seven-year high drove up the banks’ shares.
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