Shanghai’s composite index of the biggest stocks in China just had its worst day since the middle of 2008, when the financial crisis was still getting into full swing.
The index, which was a world-beater last year, just had all of its gains so far this year wiped out in just a few hours: Stocks were down by 7.7% at the close, after dropping by as much as 8.3% during the session.
Here’s how that looks:
The index is still up by more than 50% in comparison to where it was last year, giving some impression of how dramatic the 2014 rally was.
The plunge comes as the Chinese government tries to crack down on speculation. Last year the government warned investors to “fear the market” as normal savers increasingly looked to stocks.
According to the South China Morning Post, three major brokerages were banned from opening new margin lending accounts for three months, causing the slump. The brokers would usually offer people opening accounts a multiple of their money to invest with (at a hefty interest rate), but they won’t be allowed to now.
Here’s the SCMP:
“There had been a guessing game on the level of tolerance by the regulator on margin trading,” said Pan Hongwen, an analyst at UBS. “The regulator obviously wants to see the index rise at an orderly pace.
“Therefore, it would take a harsh stance on margin trading to prevent a hefty increase of the market.”
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