SHANGHAI – Chinese stocks again plunged on Wednesday, as the nation’s securities regulator cautioned investors were in the grasp of “panic sentiment” and the market hinted at solidifying up as companies mixed to get away from the defeat by having their shares suspended.
Beijing, which has battled for over a week to twist the market to its will, divulged yet another battery of measures to capture the sell-off, and the People’s Bank of China said it would venture up backing to brokerages enlisted to prop up shares
Du Changchun, an analyst at Northeast Securities said. “I’ve never seen this kind of slump before. I don’t think anyone has. Liquidity is totally depleted.”
“Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips.” He said.
The CSI300 index of the biggest listed companies in Shanghai and Shenzhen fell 4.8 percent in morning trade, while the Shanghai Composite Index dropped 3.9 percent. Both records had dove around 8 percent at the market open.
Around 30 percent has been knocked off the value of Chinese shares subsequent to mid-June, and for some worldwide investors the panic that China’s market turmoil will destabilize the genuine economy is now looming as a greater risk than the euro zone crisis.
“Likewise, the gradually expanding influence from the business sector adjustment has yet to show up,” wrote Bank of America Merrill Lynch examiners in a note. “We expect slower development, poorer corporate earnings, and a higher risk of a financial crisis.”
More than 500 China-recorded firms reported trading halts on the Shanghai and Shenzhen trades on Wednesday, taking total suspensions to around 1,300 – 45 percent of the business – as companies abandoned to sit out the slaughter.
With so many small-cap companies sheltering on the sidelines, the ChiNext growth board, which has seen some of the biggest swings in valuations, fell a generally humble 1.5 percent.
The dive in China’s previously booming stock markets, which had dramatically multiplied in the year to mid-June, is a major headache for President Xi Jinping and China’s top leaders, who are as of now pondering abating development in the world’s second largest economy.
Beijing’s interventionist response has also raised questions about its ability to enact the market liberalization steps that are a centerpiece of its economic reform agenda.
China has orchestrated brokerages and fund managers to promise to buy billions of dollars’ worth of stocks, helped by a state-backed margin finance company which the central bank pledged on Wednesday to provide sufficient liquidity.
The securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages.
Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade, which exacerbates volatility.
“It’s uncommon to see so many shares posting consecutive daily limit falls, and the index futures swinging so wildly,” said Wang Feng, CEO and founder of hedge fund firm Alpha Squared Capital Co and a former Wall Street trader.
“It’s a stampede. And the problem of the market is that all the players move in the same direction, and are too emotional.”
A surprise interest-rate cut by the central bank at the end of June, relaxations in margin trading and other “stability measures” have done little to calm investors.
The barrage of official commentary and new support measures continued on Wednesday.
Deng Ge, a spokesman for the China Securities Regulatory Commission, said in remarks posted on its official channel on Weibo, China’s version of Twitter, that there had been a big increase in “irrational selling” of stocks.
The state asset administrator told central-government-owned firms they should not sell shares in their own listed companies and should buy more stock in companies they controlled to stabilize prices.
And China’s insurance regulator said “qualified” insurers could increase their ratio of equity assets to 40 pct from 30 pct by buying blue-chip stocks.
But the market sell-off has extended beyond the mainland, with Chinese stocks on U.S. exchanges falling as much as 6.1 percent on Tuesday, according to the Bank of New York Mellon index of such securities.
Hong Kong’s Hang Seng Index fell 4.2 percent, with shares of Chinese brokerages taking a pounding.
The impact was also felt in credit markets, where the spread on bonds from securities houses widened by 18-20 basis points.
“Chinese securities companies themselves have a lot of financial asset holdings, and when there is a sell-off there will be a big impact on their balance sheets,” said Hong Kong-based Kingston Lam, credit analyst with Credit Agricole. “If they are using up cash to buyback shares it will be a further negative.”