Will the great China stockmarket rout continue today after another bruising day for mainland and Hong Kong markets that left investors wearing tens of billions of dollars of losses and the Chinese government with egg on its face?
Futures markets in China ended limit down at the close (that’s a fall of 10%), meaning there’s more selling pressure for markets to cope with this morning. Traders said that at various times yesterday it appeared China’s markets were in free fall.
Not even the news of direct financial assistance to the market from the country’s central bank (in fact tens of billions of dollars of assistance) could stop the rot yesterday as the government lost control for the third day in a row.
Despite another day of farce as hundreds more companies suspended themselves from trading, China’s markets again lost heavily and the sell wave spread to Hong Kong and forced it sharply lower.
In fact the 5.8% slide in Hong kong has wiped out all its gain as for the past year, while Shanghai is still up 60% in the same time – down from 100% on June 12.
Japan’s Nikkei stock index lost 3.1% yesterday, hit by events in China and a higher yen.
Markets opened with big losses in China (Shanghai was quickly down 8.2%) and Hong Kong (off more than 4.6% early on) ands that’s the way it continued as policy changes and exhortations to be calm emerged from Chinese government officials and authorities during the day
By the close the CSI300 index of the largest listed companies in Shanghai and Shenzhen had fallen 6.8%, while the Shanghai Composite Index lost 5.9%, to 3,507.19 points. The Shenzhen index lost 2.5%, but in a tinniest glimmer of light, the speculative ChiNext index actually rose 0.5% after being sold off heavily for much of the past couple of weeks.
Traders said all of China’s three futures index products for July delivery slumped by their 10% daily limit, meaning investors are extremely bearish on all type of stocks – small, mid, and big cap.
But there are now far fewer companies whose shares remain listed and tradable on all markets. Hundreds of Chinese stocks were frozen from trading at the start yesterday, on top of those frozen the day before and on Monday.
In fact a total of 1,476 companies now have the shares halted. That’s more than half the number of companies listed on the Shanghai and Shenzhen markets and shares with a value of $US2.6 trillion now can’t be traded, $US1.1 trillion higher than at the close on Tuesday.
In Hong Kong, which had fared better than the Chinese mainland markets until the start of this week, the sell off spread from Chinese companies listed there, to the rest of the market – it was down more than 7.1% in late trading and only some bargain hunting stopped it going further and it ended down 5.84%.
China’s central bank, The People’s Bank of China, said it was helping state-owned China Securities Finance Corporation (CSF) to access liquidity to help the fund “hold the line against the outbreak of systemic or regional financial risk”.
The Financial Times reported that “This is the clearest statement yet about what CSF is doing – buying shares directly using PBoC money, a big departure from its traditional role of lending to brokerages to support margin lending.”
“The CSF is also providing Rmb260bn ($41.8bn) of credit to brokerages in order to help them buy shares, according to the China Securities Regulatory Commission,” the FT reported.
“In a further effort to halt the rout, China’s state-sector administrator instructed government-owned companies not to sell shares, while the insurance regulator said it had cleared “qualified insurers” to increase their asset allocation to equities,” the paper reported.
