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 Beijing, which has struggled for more than a week to bend the market
to its will, unveiled yet another battery of measures to arrest the
sell-off, and the People's Bank of China said it would step up
support to brokerages enlisted to prop up shares.
The CSI300 index <.CSI300> of the largest listed companies in
Shanghai and Shenzhen closed down 6.8 percent, while the Shanghai
Composite Index <.SSEC> dropped 5.9 percent.
With nearly half the market on a trading halt and another round of
margin calls forcing leveraged investors to dump whatever shares
could find a buyer, blue chips that had been supported by
stabilization funds earlier in the week bore the brunt.
"I've never seen this kind of slump before. I don't think anyone
has. Liquidity is totally depleted," said Du Changchun, an analyst
at Northeast Securities.
"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."
More than 30 percent has been knocked off the value of Chinese
shares since mid-June, and for some global investors the fear that
China's market turmoil will destabilize the real economy is now a
bigger risk than the crisis in Greece.
"Also, the ripple effect from the market correction has yet to show
up," wrote Bank of America Merrill Lynch analysts in a note. "We
expect slower growth, poorer corporate earnings, and a higher risk
of a financial crisis."
Commodities markets reflected growing concerns about the broader
health of the world's second largest economy, with copper prices
falling to a six-year low, Shanghai nickel futures sliding by their
5 percent daily limit, and oil falling toward $56 a barrel, near a
three month-low.
TRADING HALTS
More than 500 China-listed firms announced trading halts on the
Shanghai and Shenzhen exchanges on Wednesday, taking total
suspensions to about 1,300 - 45 percent of the market or roughly
$2.4 trillion worth of stock - as companies scuttled to sit out the
carnage.
With so many small-cap companies sheltering on the sidelines, the
ChiNext growth board <.CHINEXTC>, which has seen some of the biggest
swings in valuations, fell a modest 0.8 percent.
The plunge in China's previously booming stock markets, which had
more than doubled in the year to mid-June, is a major headache for
President Xi Jinping and China's top leaders, who are already
grappling with slowing growth.
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, though
that sum is only 40 percent of the amount of leveraged positions
that investors have cut since June 18.
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RETAIL INVESTORS
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 throughout Wednesday's trading session, without visible
effect.
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.
Government agencies also announced that insurers would be allowed to
by more blue chips and urged major shareholders and top executives
to buy their own shares.
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 5.8 percent, with shares of Chinese
brokerages taking a heavy beating.
"Investors are extremely unimpressed with their sudden conscription
into national service, and you can see that in their share prices,"
said Matthew Smith, a strategist who covers the China financials
sector for Macquarie.
(Additional reporting by Pete Sweeney, Kazunori Takada and Adam
Jourdan in Shanghai, Shu Zhang and Nicholas Heath in Beijing and
Umesh Desai, Saikat Chatterjee and Michelle Chen in Hong Kong;
Writing by Alex Richardson; Editing by Will Waterman)
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