China Stock Turmoil 2015

China indices tumble in afternoon trade; Shenzhen knocked for 6pc loss

China’s major stock indices end sharply lower in session capped by late surge in selling

PUBLISHED : Wednesday, 21 October, 2015, 8:46am
UPDATED : Friday, 30 October, 2015, 3:11pm

Major Chinese indices fell sharply on Wednesday, as skittish investors veered from some early morning profit taking straight into a full blown selloff, on concerns the government will not ease policy as expected.

Shenzhen was the worst hit, with the city’s main composite index closing down 5.9 per cent at 1,889.13 while the small-company stocks tracking ChiNext index was off 6.6 per cent at 2,344.74. It was the market’s biggest one-day drop in five weeks, though a late rebound helped to mute the scale of the selloff. The Shanghai Composite fell 3.1 per cent to 3,320.68, and the blue chip tracking CSI 300 ended 2.92 per cent weaker at 3,473.25.

“People got nervous and defensive. They were expecting a RRR [required reserve ratio] cut and sectors that had outperformed the market, like media and IT, these stocks started to correct,” said Gerry Alfonso, a director at Shenwan Hongyuan Securities in Shanghai.

“There is not any major fundamental development in the market but people are nervous,” he said.

Reducing the required reserve ratio is a common policy lever used by authorities to boost credit to businesses and consumers.

In Hong Kong markets were closed for a public holiday. Trading will resume on Thursday.

More than 800 Chinese A-shares were limit-down for the day, having fallen by the maximum 10 per cent swing allowed on any single trading day. Turnover on the Shanghai market was 383.19 billion yuan, 36 per cent higher than last month’s daily average, suggesting the sell off had broad based momentum.

Nomura strategist Michael Kurtz said in a strategy note Wednesday that the “Cinderella story” for emerging markets appears to be drawing to close after sharp gains relative to other markets in recent weeks.

Emerging markets and resource stocks have risen 11.7% since September 29, according to Nomura calculations.

“We think this will prove more of a short-term, multi-week, trade than a genuine emerging market inflection point with large ‘real money’ follow-through,” Kurtz said in the note.

Brokerage companies led China stocks lower, with Citic Securities slumping 6.7 per cent to 14.95 yuan.

Leading the downside action among industrial stocks, China Shipbuilding Industry tumbled 7.5 per cent to 10.79 yuan, and rail car maker CRRC, was off 3.5 per cent at 14.67 yuan.

Online video group LeTV swooned 10 per cent to close at 47.83 yuan. The firm’s shares had risen 44 per cent this month through to Tuesday, propelled by news it had taken a majority stake in a rental car company.

Chinese banks were one of the few upbeat sectors, as investors sought out defensive sectors. Shares in Industrial and Commercial Bank of China rose 2.2 per cent to 4.60 yuan and Bank of China gained 1.8 per cent to 3.98 yuan.

Margin funding rose for the ninth day in a row to 993.09 billion yuan, according to exchange data through Tuesday. Analysts said investors’ risk appetite had increased as markets rebounded. China’s major indices are up around 15 per cent from their recent two-month lows.

Meanwhile, China’s central bank sold its first-ever dim sum bond in London on Tuesday, amid President Xi Jinping’s visit.

The order book was up to six times of the planned issuance size of five billion yuan and tightened the yield to 3.10 per cent from the initial 3.3 per cent area when the book opened, Reuters reported.

Markets are unlikely to move much higher for now said Cai Jing, a strategist with south China’s Guangzhou based GF Securities. “It looks like the A-share market will maintain a mild recovery tone before the fifth party plenum, but clearly there is a lack of catalyst to support a major breakthrough in the index,” he said.

Fang Xinghai, until recently a director-general in the Office of the Central Leading Group on Economic and Financial Affairs, will act as a new vice chairman for the China Securities Regulatory Commission, Chinese media Caixin reported.

In Hong Kong the controlling shareholder of Chinese supermarket chain Wumart announced an offer to take the firm private for HK$ 6.22 per share, a 90 per cent premium to its last closing price on October 5.

Additional Reporting by Ben Westcott