China stock market

China’s massive stock sell-off pushes benchmark index down to breach the 3,000 mark

The plunge in more than 1,000 stocks to their daily limit has pushed the combined turnover in Shanghai and Shenzhen to a two-month high

PUBLISHED : Tuesday, 19 June, 2018, 5:19pm
UPDATED : Tuesday, 19 June, 2018, 5:19pm

China’s stocks tumbled on Tuesday, sending almost a third of the 3,000-plus stocks on the mainland’s exchanges plunging by the daily limit as concerns mounted that the escalating trade tension between the world’s two largest economies will dent economic growth.

The Shanghai Composite Index slumped 3.8 per cent, or 114.08 points, to 2,907. 82, and the first time since September 2016 for the benchmark to close below the 3,000-point gateway. A composite gauge of the smaller Shenzhen exchange plunged 5.8 per cent, due to heavier sell-off in the bourse’s small-caps.

Selling was broad-based as about 1,060 companies on the two bourses plummeted by the exchange-imposed 10 per cent daily cap. Combined turnovers also rose to a two-month high of 469 billion yuan (US$72.5 billion), according to Bloomberg data.

Traders were offloading their positions of stocks after US President Donald Trump instructed his trade representatives to identify additional US$200 billion tariffs on Chinese goods on Tuesday in an intensified trade tension with the mainland. The move came right after Beijing’s retaliatory levies worth US$50 billion.

“The US-China trade negotiations are only the beginning of the story and both governments have made adverse decisions during the talks,” said Gordon Tsui, head of fixed income at Taikang Asset Management. “Current investor sentiment is not positive due to the uncertainty of negotiations. For the rest of this month, conditions will not improve to a bright outlook.”

Xiaomi’s postponement of its application to sell Chinese depositary receipts did little to help sentiments even though the smartphone maker’s plan to float the surrogate securities estimated at US$5 billion was previously seen as a drain on market liquidity. A source close to the securities regulator said the decision was probably taken because of questions over Xiaomi’s high valuation, adding that the regulator wanted the company to test the waters in Hong Kong to determine a reasonable price for its CDRs for mainland retail investors.

Companies from auto dealers to port operators and electronics makers bore the brunt of the meltdown, with their businesses most exposed to overseas shipments. Tangshan Port Group sank 10 per cent to 2.59 yuan in Shanghai and Pang Da Automobile Trade, a dealer of imported cars, slid 10 per cent to 1.69 yuan, and Routon Electronic fell by the same magnitude to 3.66 yuan.

After Tuesday’s shake-out, 54 per cent of the stocks on the Shanghai exchange were already technically oversold, with their 14-day relative strength indices breaching 30, according to Bloomberg data. The proportion on the Shenzhen bourse was 57 per cent, the data showed. A reading of below 30 signals stocks are oversold and one of above 70 indicates that they are overbought.

What rebound? China’s huge number of oversold stocks signals equity market woes aren’t over

The relative strength index for the Shanghai Composite also dropped to 27.5 on Tuesday, which could herald an imminent technical rebound. The gauge is now the worst-performing benchmark among the world’s major stock markets this year with a 12 per cent decline.

In Hong Kong, the Hang Seng Index sank 2.8 per cent and the H-share gauge slid 3.2 per cent.

Additional reporting by Laurie Chen