It\’s days like Monday that reassure Tony Hann he was right to avoid stocks in mainland China.
Boom! The bottom just dropped from China's unprecedented efforts to prop up its market
China\’s stocks tumbled the most in eight years Monday morning as investors lost faith in government measures to support the market and the IMF warned Beijing to butt out.
The severity of an 8.5 percent drop in the Shanghai Composite Index is bad enough, but what irks him the most is not knowing why it tumbled so much. In a market where unprecedented intervention makes government money one of the biggest drivers of share prices, authorities aren\’t transparent enough for investors to make informed decisions, said Hann, the top of emerging markets at Blackfriars Asset Management Ltd.
Monday\’s plunge was all the more surprising because it followed a government rescue package which had helped drive a 16 per cent rally since July 8. That support seemed to vanish unexpectedly, leaving analysts guessing whether authorities shifted their policy stance or simply got overwhelmed by a flood of sell orders. Whatever the answer, foreign investors didn\’t stick around to find out: they sold holdings of Shanghai shares for the 13th amount of time in the past 16 days.
Investors \”are concerned and lost,\” said Alex Wong, a Hong Kong-based asset-management director at Ample Capital Ltd., which oversees about US$155 million. \”China\’s marketplace is distorted, so you can\’t sell short very confidently and also you can\’t buy up very confidently either.\”
Signs of government purchases which were prevalent in recent weeks went missing in Monday\’s rout. PetroChina Co., long considered a favourite holding of state-linked rescue funds, sank 9.6 per cent. The government-run oil producer had been one of the biggest causes of support for that Shanghai Composite on big down days at the end of June and early July.
The China 50 ETF, another target of presidency funds, dropped 9.1 percent. The Shanghai Composite\’s one-day selloff was the broadest since at least 1997, with 959 more shares within the index falling than those that gained.
If state-run funds withdrew support to check whether shares could stabilize at current levels on their own, the resulting retreat may prompt the federal government to step back in immediately to prop up prices, said Hann, who oversees about US$350 million. However, if policy makers are beginning to unwind support measures to allow the market play a bigger role, shares may have further to fall, he explained.
\”It is impossible to state at this stage,\” said Hann, who has exposure to China through businesses listed on Hong Kong\’s exchange rather than mainland bourses. Foreign investors have unloaded about US$7.6 billion of Shanghai shares with the city\’s Hong Kong exchange link since July 6.