China shares continue to slide
The dramatic slide shattered three weeks of relative calm for Chinese equities, secured through heavy government intervention
 "China shares continue to slide")
Chinese stocks fell on Tuesday, as Beijing again scrambled to prop a stock market whose wild gyrations have heightened fears about the financial stability of the world’s second-largest economy. After a plunge of eight per cent in major indices on Monday, Chinese regulators on Tuesday said they were investigating share “dumping” incidents.
Earlier, the China Securities and Regulatory Commission (CSRC) had said it was prepared to buy shares to stabilise the stock market, while the central bank injected cash into money markets and hinted at further monetary easing. Despite those moves, aimed at bolstering the confidence of the ordinary investors who dominate China’s equity markets, the Shanghai Composite Index fell 1.7 per cent on Tuesday, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen dipped 0.2 per cent.
A highly volatile day, not unusual in China’s unruly stock markets, had seen both indices lurching between losses of as much as five per cent and gains of about one per cent.
“Retail investors’ confidence in the mainland market is very weak,” said Steven Leung, director at UOB Kay Hian in Hong Kong.
Monday’s dramatic slide shattered three weeks of relative calm for Chinese equities, secured through heavy government intervention in which authorities pumped liquidity into the market, while effectively barring many investors from selling. The rapid sell-off, which saw China’s major indices record their biggest one-day loss in about eight years, might have been partly due to authorities testing the water for withdrawing some of that heavy-handed support.
Three people in the banking sector told Reuters on Monday that the state-run margin lender had returned ahead of schedule some of the funds it borrowed from commercial banks to stabilise the stock market. “The authorities picked an inopportune time to float a trial balloon about scaling back market support operations,” Tim Condon, head of research (Asia) for ING Bank in Singapore, wrote in a note on Tuesday.
“Lesson learnt: sentiment manifestly remains fragile.”
Earlier, the China Securities and Regulatory Commission (CSRC) had said it was prepared to buy shares to stabilise the stock market, while the central bank injected cash into money markets and hinted at further monetary easing. Despite those moves, aimed at bolstering the confidence of the ordinary investors who dominate China’s equity markets, the Shanghai Composite Index fell 1.7 per cent on Tuesday, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen dipped 0.2 per cent.
A highly volatile day, not unusual in China’s unruly stock markets, had seen both indices lurching between losses of as much as five per cent and gains of about one per cent.
“Retail investors’ confidence in the mainland market is very weak,” said Steven Leung, director at UOB Kay Hian in Hong Kong.
Monday’s dramatic slide shattered three weeks of relative calm for Chinese equities, secured through heavy government intervention in which authorities pumped liquidity into the market, while effectively barring many investors from selling. The rapid sell-off, which saw China’s major indices record their biggest one-day loss in about eight years, might have been partly due to authorities testing the water for withdrawing some of that heavy-handed support.
Three people in the banking sector told Reuters on Monday that the state-run margin lender had returned ahead of schedule some of the funds it borrowed from commercial banks to stabilise the stock market. “The authorities picked an inopportune time to float a trial balloon about scaling back market support operations,” Tim Condon, head of research (Asia) for ING Bank in Singapore, wrote in a note on Tuesday.
“Lesson learnt: sentiment manifestly remains fragile.”
Knock-On Effect
The wild volatility in China's markets has stoked fears among global investors about the broader health of the Chinese economy, hitting prices of growth-sensitive commodities such as copper, which hit a 6-year low on Monday.
The renewed slump helped drag shares elsewhere in Asia to three-week lows on Tuesday, and sent investors scurrying for safe-haven assets such as government bonds and the Japanese yen.
But, while recent stock market weakness will have caught out many Chinese retail investors and companies, the relatively low rate of stock ownership by households and a disconnect between valuations and economic fundamentals mean the impact on the economy is likely to be less than it would be in other markets.
The People's Bank of China said on Tuesday it would inject 50 billion yuan ($8.05 billion) into money markets in its biggest liquidity boost since July 7, near the trough of the last market sell-off.
The central bank also said, in a statement before the stock market opened, that it would use "various monetary tools" to maintain "appropriate levels of liquidity", a signal that the further monetary easing that many analysts have predicted could be in store.
China's main stock indexes had more than doubled over the year to mid-June, when a sudden swoon saw shares lose more than 30% of their value in a matter of weeks.
Markets finally began stabilising again in the second week of July after a barrage of official support measures.
China's central bank cut interest rates, brokerages formed stabilisation funds and regulators lifted restrictions on pensions and insurers investing in stocks, an implied combined total verbal commitment of almost $800 billion.
Beijing also cracked down on "malicious" short-sellers in the futures market, froze IPOs to prevent a liquidity drain and looked the other way as around 40% of companies suspended trading in their shares to escape the rout.