Frantic selling batters Shanghai and Hong Kong equity markets

Shanghai and Hong Kong indices fall below milestone levels as more than 2,000 mainland stocks hit daily downside limit of 10 per cent

PUBLISHED : Tuesday, 25 August, 2015, 1:11am
UPDATED : Tuesday, 25 August, 2015, 8:48am

Frantic selling battered the equity markets on Monday as investors punished companies and sectors indiscriminately, knocking Shanghai and Hong Kong indices below milestone levels.

Across Shanghai and Shenzhen, 2,373 A-share stocks lost share value over the day, while just 16 finished having made gains. More than 2,000 stocks hit their daily downside limit of 10 per cent, with a mere 128 still trading at the end.

In Hong Kong, 49 of 50 Hang Seng Index companies lost out with 23 of them touching 52-week lows; at the close that number stood at 14. An index measuring volatility surged to its highest value since 2011.

"What we witnessed [on Monday] was an absolute meltdown on China stocks and the search for a safe haven continues," said Stephen Innes, a senior foreign exchange trader at Oanda. "We're setting up for a nasty week in the markets if [Monday] was any indication. Contagion is the name of the game and few, if any, asset classes are safe."

On the mainland, all major sectors declined between 7 per cent and 9 per cent, with large caps weighing heavily on indices as investors abandoned their usual safe havens of blue-chip state-owned financial, industrial and energy stocks.

Bank of China, Agricultural Bank of China and Industrial and Commercial Bank of China each knocked more than 10 points off the Shanghai Composite Index, which closed at 3,209.91 points, having dropped 8.49 per cent, an eight-year record.

Oil majors PetroChina and Sinopec faded badly after a 2.55 per cent drop in Brent crude oil prices overnight.

"You saw some buying by the national team (a collection of state-backed financial institutions and regulators) for a few minutes, but the selling pressure was too high," said Louis Tse, a director of VC Brokerage.

With the central government failing to prop up the market as Shanghai cracked the floor at 3,500 points, analysts said Beijing should shift focus to macroeconomic issues in order to reverse the negative sentiment.

"The market is desperately in need of a rate cut or reserve requirement ratio cut [by the People's Bank of China]," said Kenny Tang Sing-hing, chief executive at Jun Yang Securities.

In Hong Kong, turnover reached HK$139 billion, a recent high, surging in the closing minutes as a last-ditch sell-off pushed the Hang Seng Index to 21,251.57 points, a 15-month low.

The flagship index shed 1,158.05 points, its largest single-day point loss since 2011, while its 5.17 per cent decline was the biggest since 2008.

Mainland firms listed in Hong Kong were not spared. Anhui Expressway was the only H-share stock to improve, gaining 1 per cent on its positive interim results, but in Shanghai its A-shares fell by the maximum 10 per cent.

Even a carefully chosen portfolio by BNP Paribas has failed to counter the market rout.

Out of 24 stocks in the French bank's China basket only six have outperformed benchmarks since the report was published on July 9. Two others have performed in line, while 16 have retreated by more than 13 per cent.

The most resilient stock is Shenzhen International Group, a logistics firm, which has gained almost 1 per cent.

"Investors should brace for further volatility. But we expect this bout of risk aversion to pass, with equities in developed markets resuming their upward trend," said Mark Haefele, global chief investment officer at UBS Wealth Management.