Mainland stocks fell to their lowest close in three-and-a-half years yesterday, as skittish investors lost confidence in the economy and the market.
The Shanghai Composite Index shed 42.99 points, or 2.1 per cent, to 2,024.84, its lowest close since February 2, 2009, and within one trading session of the psychologically important 2,000-point level.
Analysts predicted a panic sell-off would occur if the indicator continued falling and went below that level. "The constant retreat of prices has hurt investor confidence," UBS Securities chief strategist Gao Ting said. "Buying interest is very low amid the bearish sentiment."
Third-quarter data is expected to show further slowing in the mainland economy, hit by dwindling external demand and weaker manufacturing activity in the domestic market. The mainland's economy grew 7.6 per cent in the second quarter, the slowest rate of growth in three years.
Investors had expected Beijing to announce a series of stimulus measures to counter the slowdown, but Beijing has yet to unveil strong incentives to bolster their confidence. The market's main indicator has lost nearly 8 per cent this year, following a 21.7 per cent slump in 2011.
The preliminary reading of the HSBC's purchasing managers' index hit 47.8 in September, which showed the mainland manufacturing activity entered an 11th consecutive month of contraction. A reading below 50 indicates shrinking manufacturing activity.
Mainland investors are expected to keep a close watch on government policy direction, believing the regulators' attitude to the market could affect the indicators. Earlier this month, the nation's top economic planning agency approved infrastructure projects worth about 1 trillion yuan (HK$1.22 trillion), but investors and analysts thought it wasn't enough to underpin the slowing economy. The approvals sparked a 4.3 per cent rise in share prices in the first 10 days of this month followed by a correction as hopes for more supporting measures were dampened.