China stocks crushed, biggest one-day loss in years

Large-scale price falls returned to the Chinese stock market today, and in a big way.

The benchmark Shanghai Composite index was crushed, falling 8.48%, or 345 points. The decline was the largest in percentage terms since February 27, 2007 — over eight years ago.

From Thursday’s close the index has now lost close to 10%.

No sector escaped the carnage. Energy, industrials, materials, healthcare, technology and telecommunications all finished with declines of more than 8%. Utilities, down 7.68%, was the relative outperformer.

True to recent form, other major indices also posted massive losses. The SSE 50, comprising the 50-largest firms by market cap in Shanghai tumbled by over 9%. The CSI 300, containing the 300 largest firms listed in Shanghai and Shenzhen, shed 8.56%.

Small cap stocks, while still down substantially, outperformed their larger peers. The CSI 500, Shenzhen Composite and tech-heavy ChiNext indices finished with declines of 7.49%, 7.00% and 7.40% respectively.

As usual there is no definitive reason to explain the fall — aside from inexperienced investors using large amounts of leverage, of course.

Earlier today industrial profits data revealed a decline of 0.3% in the year for June, below the 0.6% growth seen in May.

Xinhua, citing research from Southwest Securities, also reported that around 3.7 billion “lock-up” shares worth 90.6 billion yuan would become tradable on the Shanghai and Shenzhen bourses between 27 and 31 July. If investors sold these shares once they became available to trade it may have contributed to the huge selloff seen today.

Fitting with the scale of the decline, there were also rumours that some measures used by policymakers to underpin stocks in recent weeks had also been unwound.

Whatever the reason, if due to the above or other factors, it was certainly an ugly day for investors.

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