Markets across Asia followed China’s key share indexes into the red today despite further efforts from Beijing to stave off the relentless fall in Chinese share prices.
A short time ago the benchmark Shanghai Composite was down more than 5% for the day, having fallen as much as 7%, while the SSE 50 index of the top 50 stocks on the bourse was down more than 7%. The CSI 300 of the largest listed firms on the Shanghai and Shenzhen exchanges was down 7%.
Authorities admitted panic selling had taken hold among Chinese investors.
A China Securities Regulatory Commission spokesman said markets were “full of panic emotion and the number of irrational selling has been increasing”, according to a report in the South China Morning Post.
One-third of the value of Chinese stocks has now been wiped off in three weeks.
There appears to have been a shift in the market assessment of the risk China’s bubble bursting poses to the global outlook. Markets in Japan, Hong Kong, Taiwan, South Korea, Singapore and Australia were all lower. Hong Kong’s Hang Seng was down more than 5%, while the Nikkei shed 3% and Australia’s ASX200 closed down 2%.
Chris Weston, IG Markets’ chief strategist in Sydney, said in a note to clients that “we have for the first time seen real selling coming into the ASX 200 on Chinese stock weakness”, but added that “the sizeable falls in the Nikkei and Hang Seng are also hurting local sentiment”.
More than half of the stocks on the Chinese market, with a combined market value of $US2.2 trillion, had entered a voluntary trading halt hoping to avoid being caught up in the selling.
Authorities in China unveiled a raft of new measures to try and contain the losses on the markets, including allowing increased exposure to equities among insurance companies and extending government buying of stocks beyond blue-chip companies and into smaller and medium-size companies.
The rout is being driven by the unwinding of margin debt used to by shares by retail investors in China, who comprise more than 80% of the nation’s share owners.
But Beijing’s efforts to manage the downturn in the market are looking increasingly like panic, and some analysts are wondering if the risk is starting to spread beyond China’s small shareholder class. Soc Gen said in a research note to clients:
As one of the key measures, nearly all the big nonbank financial institutions are called to increase their investment in the market and one of them, China Securities Finance Corporation, is granted the access to the PBoC’s liquidity support. We think that the rescue plan could potentially increase the systemic risk down the road. Initially most of the stock market risk was with households, but with the rescue plan, systemically important institutions are taking up more risk when the market is still under immense downward pressure. Our biggest concern is that the progress of structural reform could suffer.