Update | China stocks sink 8 per cent on brokerage crackdown
Crackdown on margin lending sees Shanghai index post biggest single-day drop in six years
China’s A-share market dropped the most in over six years on Monday following Beijing’s crackdown on brokerages’ margin business and a government proposal to tighten supervision of shadow banking products.
The Shanghai Composite Index dived 260.14 points, or 7.7 per cent, to 3,116.35 in the largest daily drop since June 10, 2008.
"The market took a cue from the central government, which obviously hoped to cap the wild gains in stock prices," said Zhao Long, a broker at Qilu Securities. "As fundamentals can't support the high prices, the recent strong rally has made top officials feel nervous."
On Friday, the China Securities Regulatory Commission (CSRC) banned Citic Securities, Haitong Securities and Guotai Junan Securities from opening new margin trading accounts for three months after the three major brokerages were found to have illegally rolled over margin trading contracts for clients.
The China Banking Regulatory Commission (CBRC) published draft rules yesterday aimed at intensifying supervision of entrusted loan products, a kind of shadow banking product that helps issuers raise funds that typically flow into assets such as property and stocks.
The CSRC last night issued a statement urging investors to stay calm and not to read too much into its policies, a clear signal that Beijing wants to avoid further market turmoil.