Chinese regulators worked furiously to shore up trillions of dollars in losses on the country's stock markets, as shares nosedived again amid growing fears that China's woes could spread worldwide.
More than 30 per cent has been hacked off the value of Chinese shares since mid-June, and some investors believe the Chinese share sell-off could have a more destabilising effect than the crisis in Greece.
‘Panic’
The
Shanghai
Composite Index has slumped 32 per cent from its June 12th peak, while the smaller Shenzhen Composite Index has fallen 40 per cent.
In all, Chinese equities have lost nearly €3 trillion in value in less than a month as traders frantically liquidated leveraged bets.
For the first time yesterday, the word “panic” began to be whispered among investors, as the securities regulator warned of “panic sentiment” gripping investors. The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed down 6.75 per cent, while the Shanghai Composite Index dropped 5.91 per cent.
“Margin trading” by small investors before the bursting of the equities bubble in the world’s second largest economy was a major fear.
Meanwhile, the Chinese government has introduced trading controls, which mean that investors trying to sell Chinese shares have found themselves locked out of 72 per cent of the market.
Some 1,331 companies have halted trading on mainland exchanges, freezing €2.36 trillion of shares, or about 40 per cent of the country’s market capitalisation. Another 747 fell by the 10 per cent daily limit before trading was frozen yesterday, making it all but impossible to find buyers at the prevailing price, Bloomberg reported.
The effect of these trading controls was seen as potentially negative.
"Trading halts will affect investor confidence," Bernard Aw, a strategist at IG Asia Pte in Singapore, told Bloomberg. "Individual traders will still offload the counters when trading resumes, unless there is a considerable change."
Collapse
The key Chinese measure of share performance, the Shanghai Composite Index, has risen 150 per cent over a year, mostly driven by margin trading, where small investors borrow heavily to buy shares.
The market collapse in what were previously booming stock markets, which had more than doubled in the year to mid-June, presents a major headache for Chinese president Xi Jinping and other top leaders, who are already grappling with flagging economic growth.
