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 The People's Bank of China had said one of the goals of Saturday's
decision to cut both lending rates and reserve requirements at some
banks was to stabilize stock market fluctuations, but Monday's trade
saw wild swings.
The chaotic trading day was an uncomfortable backdrop for
policymakers in Beijing, where delegates from 57 countries gathered
to witness the signing of the articles of agreement for a
Chinese-led development bank, which is expected to rival
institutions such as the World Bank and the Asian Development Bank.
At one point in the early afternoon the CSI300 index <.CSI300> of
the largest listed firms in Shanghai and Shenzhen was down over 7
percent, but less than an hour later it had recovered almost
completely and crossed back into positive territory, leading to
speculation that state-owned asset management companies had
intervened to prop up the market at the last minute.
Even so, the CSI300 index <.CSI300> closed down 3.3 percent at
4,191.55 points, while the Shanghai Composite Index <.SSEC> lost 3.3
percent to 4,054.86 points, falling below its 100-day moving average
for the first time since the rally began in the third quarter of
2014.
Hong Kong markets also dropped over 2 percent, with investors
running for cover, worried that Greece might default in the middle
of a Chinese stock market rout, amplifying the downside.
The sudden collapse of mainland equity markets has wiped a combined
16.35 trillion yuan ($2.63 trillion) off market capitalization -
more than the GDP of Brazil - since a June 12 peak, dealing
substantial damage to retail investors' confidence in just a few
short weeks.
Lu Yahu, a 40-year-old stock investor, said he would use any rebound
as a chance to sell off his remaining stocks, as he's convinced the
bull run is dead.
"With this sort of slump, are we still in a bull market? Of course
not," said Lu, who said he was facing losses of up to 40 percent
after buying shares in a Chinese automaker.
"Don't believe in rhetoric about the 'slow bull' in state media," he
added.
"I have no confidence in China's economy. It's not going to get
better in the next 20 years."
SELL OFF
One internet finance company Qiaoniu.com, which lends investors
money to buy stocks, urged clients to get out of the market by 2:30
pm, or the lender would force them to.
"In order to avoid unnecessary losses, stock investors, please
evacuate your positions," said the company in an online statement
picked by local media and circulated widely online.
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The company, which has over 100,000 members, had lent over 2.7
billion yuan to investors as of April. It pulled the posting in the
afternoon, saying it was a mistake, and did not answer calls
requesting comment.
Market analysts blamed the destabilizing influence of leverage in
the market for the enduring weakness, aggravated by a lack of
economic data to support a rally that had seen major indexes rise as
much as 150 percent by early June.
"The rapid growth of leverage over the past year is a key point of
difference between now and 2008, when the bursting of the bubble
left the financial system unscathed," wrote Mark Williams of Capital
Economics in a research note, noting that margin positions at around
$350 billion were equivalent to 3.5 percent of the country's GDP.
"This is already a huge amount, but the use of borrowed money to
speculate on stocks goes far beyond those with accounts at the
regulated brokers."
However, pessimism is not universal. In the past sharp corrections
have ultimately proven to be buying opportunities after markets have
calmed down, and some are still betting there are more good times to
come.
Fu Haizhong, a 74-year old investor who spoke to Reuters from a
trading room in downtown Shanghai, was already bargain shopping.
"Look," he said, pointing at his trading terminal screen. "I bought
China National Nuclear Power <601985.SS> when it was at its lowest
today. I'll sell when it rises. If not today, then tomorrow. If not
tomorrow, then the day after tomorrow."
($1 = 6.2088 Chinese yuan renminbi)
(Additional reporting by Sue-Lin Wong, Samuel Shen and the Shanghai
Newsroom; by Saikat Chatterjee in HONG KONG and Vikram Subhedar in
LONDON; Editing by Will Waterman)
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