China stocks on Friday posted some of their worst losses in seven years, as investors stampeded out of a market amid increasing signs the nation\’s eight-month-long bull run is not having enough fuel.
The key CSI300 index fell 7.9 per cent, to 4,336.19, as the Shanghai Composite Index lost 7.4 percent, to 4,192.87 points.
For the SSEC,? it was the worst one-day loss since Jan 19. For that CSI300, the drop was the largest since June 2008.
Stocks fell overall, with nearly 2,000 from the roughly 2,800 listed companies in Shanghai and Shenzhen slumping by their 10 percent daily limit. A gauge of equity volatility jumped towards the highest level since 2009.
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Here’s exactly what the dive looked like on the Shanghai Shenzhen CSI 300 Index
China\’s $8.8 trillion stock market has plunged from first to worst on global performance rankings, threatening to bring an end towards the longest bull market since the ruling Communist Party introduced equity trading to the world\’s largest population in 1990. Morgan Stanley advised clients to refrain from purchasing mainland shares in a report on Friday, saying the Shanghai Composite\’s June 12 high likely marked the top of the rally.
\”This is probably not a dip to purchase,\” wrote Jonathan Garner, the head of Asia and emerging-market strategy at Morgan Stanley in Hong Kong. \”In fact, we think the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and the ChiNext has now taken place.\”
The Shanghai gauge has surged 106 per cent over the past year as margin debt climbed to some record and investors speculated monetary stimulus will revive the weakest economic expansion in more than two decades. The bull market, which turned 935 days old Friday, is much more than 5 times the average lifespan of previous rallies.
Friday\’s rout was led by technology and smaller companies, the leaders of China\’s world-beating rally through mid-June. The ChiNext index slid 8.9 per cent, extending losses to 27 percent since hitting a higher on June 3. The Shenzhen Composite Index also entered a bear market after falling an additional 7.9 per cent.
The Shanghai Composite\’s losses were broad-based with 44 stocks falling for each one that gained. The index slid 6.4 percent this week, adding to a 13 per cent plunge last week that was the steepest because the global financial crisis.
The CSI 300 Index of China\’s largest companies slumped 7.9 per cent on Friday. The Hang Seng China Enterprises Index of mainland companies in Hong Kong fell 2.8 percent and the Hang Seng Index lost 1.8 percent.
With little in the way of economic data or corporate announcements to spark the plunge on Friday, some investors pointed to indications of a pullback by leveraged traders. Outstanding margin debt around the Shanghai Stock Exchange dropped for any fourth day on Thursday to at least one.42 trillion yuan (US$229 billion).
\”The correction is basically margin selling,\” said Francis Lun, the main executive officer at Geo Securities Ltd. in Hong Kong.
The stocks favored most by margin traders in the height of China\’s boom in mid-June have since tumbled 26 per cent. The benchmark index has already established nine straight sessions of intraday swings exceeding 2 percent.
PetroChina Co., the largest stock in the mainland, slumped 7 per cent on Friday. East Money Information Co., the most heavily weighted stock within the ChiNext, dropped by the ten per cent daily limit. Poly Real Estate Group and Gemdale Corp. led declines for developers, tumbling 10 per cent.
Concern over a shortage of liquidity has helped fuel losses now as investor funds got tangled up in new share sales and also the People\’s Bank of China refrained from easing monetary policy, disappointing some analysts who had anticipated a decline in interest rates or banks\’ reserve requirement ratios.
Guotai Junan Securities Co., China\’s largest brokerage by revenue, surged 44 percent on its first day of trading in Shanghai on Friday after it completed the nation\’s biggest domestic initial share sale since 2010.
\”The Shanghai Composite may fall towards the 4,000 level within the next five to eight weeks as the government tightens margin lending, new share sales sap liquidity and concern grows the central bank won\’t cut lenders\’ reserve-requirement ratios,\” said Hou Yingmin, an analyst at AJ Securities in Shanghai.
Morgan Stanley cited increased equity supply, weak earnings growth, high valuations and the surge in margin debt for its pessimistic stance, saying the Shanghai Composite may fall around 30 per cent through mid-2016.
Strategists at BlackRock Inc., Credit Suisse Group AG and Bank of the usa Corp. all said a week ago that Chinese equities have been in a bubble, as the median stock on mainland exchanges is worth 85 times earnings – greater than when the market peaked in October 2007.