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 After a plunge of more than 8 percent in major indexes on Monday,
Chinese regulators said on Tuesday they were investigating share
"dumping" incidents.
Earlier the China Securities and Regulatory Commission (CSRC) had
said it was prepared to buy shares to stabilize 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 <.SSEC> fell 1.7 percent on Tuesday, while the
CSI300 index <.CSI300> of the largest listed companies in Shanghai
and Shenzhen dipped 0.2 percent.
A highly volatile day - not unusual in China's unruly stock markets
- had seen both indexes lurching between losses as deep as 5 percent
and gains of more than 1 percent.
"Retail investors' confidence in the mainland market is very weak,"
said Steven Leung, a director from 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 indexes suffer their
biggest one-day loss in more than eight years, may have been partly
due to authorities testing the water for withdrawing some of that
heavy-handed support.
Three people in the banking industry with direct knowledge 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 stabilize the stock market.
"The authorities picked an inopportune time to float a trial balloon
about scaling back market support operations," wrote Tim Condon,
head of research Asia for ING Bank in Singapore, in a note on
Tuesday.
"Lesson learned: sentiment manifestly remains fragile."
WILD VOLATILITY
The wild volatility in China's markets has stoked fears among global
investors about the broader health of the Chinese economy, and sent
Asian investors scurrying on Tuesday for safe-haven assets such as
government bonds and the Japanese yen. [MKTS/GLOB]
While economists at Nomura said China's economy was "far from being
in a crisis scenario", they said shaken investors could cut back on
spending and investment, which could impede a broader recovery that
had been expected in the second half of the year.
Market watchers also fear that some companies may be facing heavy
losses after speculating in stocks, although the overall amount of
leverage is hard to quantify.
Still, Nomura said the sell-off "should only have a limited negative
impact on the real economy".
But the renewed turbulence has raised questions about the long-term
viability of Beijing's strategy of intervening to control its
markets.
"Monday's plunge showed the Chinese authorities that even
governmental measures have their limits," said Bernard Aw, market
strategist at IG in Singapore. "It's anybody's guess what else they
can do to shore up market sentiments.
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MONETARY FIREPOWER
Despite a slowing economy, China's main stock indexes had more than
doubled over the year to mid-June, when a sudden swoon
that wiped out as much as $4 trillion in stock market capitalization
in a matter of weeks.
Markets finally began stabilizing in the second week of July after a
barrage of official support measures. China's central bank cut
interest rates, brokerages formed stabilization funds and regulators
lifted restrictions on pensions and insurers investing in stocks.
Much of the gains since then have been given up in recent days, with
Chinese shares now down around 30 percent from their mid-June peak.
After a series of crackdowns on "malicious" short selling, and an
earlier ban on shareholders with large stakes from selling, China's
regulator said on Tuesday it was investigating share "dumping",
without offering details.
"The CSRC has already set up an inspection and enforcement force,
specifically focused on examining clues about concentrated dumping
of shares on the 27th," spokesman Zhang Xiaojun was quoted as saying
in a question-and-answer transcript posted on its website.
The People's Bank of China had earlier said 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 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 top economic planner described the stock market turbulence
as "abnormal", but said it was optimistic on the outlook for the
economy in the second half of the year.
"The fundamentals of China's economy are stabilizing and turning
better," Li Pumin, secretary general of the National Development and
Reform Commission, told a briefing in Beijing.
"So we have the foundation and necessary means to keep the healthy
development of capital market including the stock market."
(Additional reporting Adam Jourdan and Lu Jianxin in Shanghai, Donny
Kwok in Hong Kong and David Stanway, Ben Blanchard, Xiaoyi Shao and
Nicholas Heath in Beijing; Writing by Alex Richardson; Editing by
Rachel Armstrong)
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