Day when the only way was down: Panic selling in mainland Chinese stocks spreads to Hong Kong
As half of mainland listed firms halt trading, contagion spreads to the Hong Kong share market
Hong Kong stocks saw one of their worst days in history yesterday, with the key index losing more than 2,000 points at one point, as the market reeled from panic sell-offs on the mainland and uncertainties over Greece.
As investors ignored a battery of support measures from Beijing to revive market sentiment, mainland stocks continued to plunge. The benchmark Shanghai Composite Index lost another 5.9 per cent, or 219.93 points, to close at 3,507.19, the lowest in nearly four months.
[Investors should] stay calm [and] beware of risks of the market
The Shenzhen Component Index, dominated by smaller companies, lost 2.94 per cent, or 334.71 points, to finish at a four-month low of 11,040.89.
Contagion hit Hong Kong - half of whose stocks are listed mainland companies - as foreign investors fled Chinese shares amid fears of a meltdown after a nearly 30 per cent plunge in less than a month.
The Hang Seng Index lost 5.84 per cent, or 1,458.75 points, to finish at 23,516.56 yesterday. That was the biggest single-day percentage drop since November 6, 2008, when city stocks were hit by the global financial crisis.
Yesterday the index fell up to 8.2 per cent during trading, its biggest intraday loss ever, shedding 2,138 points.
"The government would increase the regulatory efforts in a bid to ensure the market works smoothly," he said, adding that the Securities and Futures Commission had conducted stress tests on securities firms and did not find any problems.
Beijing, meanwhile, continued to roll out fresh measures to calm the market even though none of the steps it has taken so far has managed to stem the slide.
While the People's Bank of China said it was watching the situation closely and would guard against regional financial risks, last night the nation's securities watchdog banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months.
Controlling shareholders and investors holding more than a 5 per cent stake in a company would not be allowed to reduce their holdings for this period, the China Securities Regulatory Commission (CSRC) said in a statement.
The move comes as senior management and controlling shareholders have been found to be cashing out aggressively, some selling into the rally and others locking in gains while they still can in the fear that the market might drop even further.
Apart from the CSRC, state-backed China Securities Finance vowed it would not just support blue chips but also increase its buying of small and medium-sized company stocks.
But there may not be a lot to choose from as another 660 companies yesterday chose to suspend trading. With that, 1,429 companies, or 51 per cent of all stocks listed in Shanghai and Shenzhen, have opted for the sidelines and wait for the storm to blow over.
Watch: Beijing admits there's market panic as half of all China-listed companies halt trading
Apart from these stocks, 747 fell by the 10 per cent daily limit yesterday, which automatically shut them out of trading under mainland rules, significantly narrowing the available pool of mainland stocks trading on the market.
Central Huijin Investment, a unit of the country's sovereign wealth fund, also promised to continue to buy more index trackers and not sell any Chinese shares it owns.
"The ripple effect from the market correction has yet to show. We expect slower growth, poorer corporate earnings and a higher risk of a financial crisis," said David Cui, Shanghai-based strategist at Bank of America Merrill Lynch.
Market watchers now fear the stock free fall could trigger a financial crisis on the mainland, with the heavy losses incurred by banks and brokers as a result of the meltdown delaying planned financial reforms, including the incremental steps to open up the nation's capital account.
"If the market continues to fall sharply, stock-lending-related losses could run into trillions of yuan … these potential losses can be especially dangerous to brokers whose capital base is less than 1 trillion yuan," said Cui.
"The opaqueness of China's financial system and the lack of clear definition of risk responsibility mean that contagion risk is high, similar to the subprime crisis," he said.
