Chinese stocks yesterday posted some of their worst losses in seven years, as investors stampeded out of a market amid increasing signs the country’s eight-month-long bull run is running out of fuel.
The key CSI300 index fell 7.9 percent to 4,336.19, while the Shanghai Composite Index lost 7.4 percent to 4,192.87 points.
For the Shanghai index, it was the worst one-day loss since Jan. 19. For the CSI300, the drop was the biggest since June 2008.
Photo: Reuters
Stocks fell across the board, with nearly 2,000 of the roughly 2,800 listed companies in Shanghai and Shenzhen slumping by their 10 percent daily limit.
After the CSI300 fell through several technical support levels, there was “no technical buying support left following a massive rally over the last year or so,” investment adviser Rivkin said in a note.
Further falls in Chinese stocks “will send ripples throughout Asian markets,” Rivkin said.
A more-than-doubling of China’s stock market over the past year had been underpinned by rapidly expanding margin financing, monetary easing and hopes of economic restructuring, but analysts said two of the three legs are now shaky.
Regulators have been cracking down on illegal margin financing and urging brokerages to tighten rules. Many investors have also faced increasingly expensive margin calls over the past week as share prices have retreated.
Outstanding margin loans shrank for the third straight day on Wednesday to 2.2 trillion yuan (US$354.2 billion), as investors slashed 61.5 billion yuan of leverage during the period, the latest data showed.
Analysts yesterday said that more leveraged investors were closing their positions. Haitong Securities Co (海通證券) strategist Jiang Chao (姜超) said that further monetary easing — long another pillar of investor optimism — is also in question.
“Recent bond market performance reflects institutional investors’ view that the rate cut cycle is coming to an end,” he said.
Morgan Stanley forecast that Shanghai’s benchmark index would fall between 2 percent and 30 percent from current levels over the next 12 months, citing heavy equity issuance, weak corporate earnings, demanding valuations and excessive levels of margin financing.
Morgan Stanley advised clients to refrain from purchasing Chinese shares in a report yesterday, saying the Shanghai Composite’s June 12 high likely marked the top of the bull market.
“This is probably not a dip to buy,” wrote Jonathan Garner, the head of Asia and emerging-market strategy at Morgan Stanley in Hong Kong. “In fact, we think the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and the ChiNext has now taken place.”
Additional reporting by Bloomberg
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