China shares plummet again, analysts warn too early for bargain hunting as global risks rise

Shanghai benchmark off 3.2 per cent, while Shenzhen down 4 per cent

PUBLISHED : Thursday, 21 January, 2016, 5:54pm
UPDATED : Thursday, 21 January, 2016, 5:54pm

China’s stock markets retreated Thursday, wiping out gains made earlier this week, as analysts warned it was too early to begin bargain hunting amid a backdrop of mounting global risk aversion.

The benchmark Shanghai Composite Index dropped 3.22 per cent, or 95.89 points to close at 2,880.80.

The CSI300 Index fell 2.93 per cent, or 92.94 points to 3,081.44. The Shenzhen Composite Index plunged 4 per cent, or 75.32 points to 1,800.99. The Nasdaq-style ChiNext lost 4.2 per cent, or 92.24 points to 3,081.44.

Among sectors suffering the biggest declines were utilities, transports and aerospace.

Data show that mainland many investors have moved to the sidelines while they await further clues to the market’s overall direction. The outstanding margin lending balance through brokerages, recorded by the Shanghai and Shenzhen bourses stood at 991.56 billion yuan (HK$1.18 trillion) by Wednesday, marking the lowest level since October 22.

In a strategy note issued Thursday, China International Capital Corporation advised to adopt a defensive posture and “do not rush to catch the falling knives”, a euphemism which means to be cautious when it comes to buying in a falling market.

“The brief rebound earlier this week made some people believe the market is reviving and it was time to buy cheap. But actually the situation is turning worse, not better with the oil price and the Hong Kong dollar falling. Global markets are in panic as big sell-off sweeps the Asian (Hong Kong and Japan in particular), European, and US markets,” CIC said.

Asian shares started the day with a rebound from Wednesday, as March futures on West Texas Intermediate crude climbed as much as 1.8 per cent.

After a brief gain, markets across Asia turned lower, along with crude oil prices at midday.

The MSCI Asia Pacific Index has tumbled more than 11 per cent year to date, on track for its worst monthly performance since the financial crisis in 2008.

Hong Hao, chief strategist with Bocom International, said interventions in mainland assets such as the currency and equity markets have prevented market prices from adjusting to reflect the mainland economy’s deteriorating fundamentals. He added that these effects were being expressed in volatility in Hong Kong asset prices.

Hong Kong’s Hang Seng Index finished 1.82 per cent lower, off 344.15 points, to 18,542.15, the lowest level since June, 2012. Japan’s Nikkei 225 Index dropped 2.43 per cent to 16,017.26, more than 23 per cent down from the recent peak in June.

The Hong Kong dollar bounced back in early morning and was trading at 7.8180 per US dollar at 4 pm, compared to 7.8294 at midnight, its lowest level in eight and a half years.

Meanwhile, the People’s Bank of China announced on Thursday it had injected a total of 400 billion yuan into the interbank market through open market operations, in a bid to lower credit costs without spurring yuan devaluation expectations.

On Wednesday, Fang Xinhai, deputy chairman of the China Securities Regulatory Commission said in CNN interview in Davos that the suspended stock market circuit breaker mechanism was not an appropriate policy for China, as the market has been dominated by small investors, which then became were incentivised to sell. But he noted “we should give regulators credit for admitting the mistake.”