Chinese stocks are getting torched

Photo: China Photos/Getty Images

Chinese stocks are in free-fall on Wednesday afternoon. I’m sure that’s something you haven’t heard in a while.

A short time ago the benchmark Shanghai Composite index was down 3%, cascading below the 3,000 point level in recent trade.

Other major indices are also under pressure, particularly small cap stocks.

The SSE 50, comprising the 50 largest stocks by market capitalisation in Shanghai, is down 2%, while the CSI 300 — an index that contains large listed firms in both Shanghai and Shenzhen, is off by 2.55%.

Those losses pale in comparison to the likes of the Shenzhen Composite, CSI 500 and tech heavy ChiNext indices which are all currently off by more than 4%.

It’s certainly something that has come out of the blue, but one has come to expect that from Chinese markets. The heaving embodiment of swirling speculation that they are.

As usual, the explanations for the decline are dime a dozen, although which one is actually driving the price action — if any — are as yet unknown.

“Investors believe there will no monetary easing any time soon,” Xiao Shijun, analyst at Guodu Securities in Beijing, told Reuters. “That means the market lacks a driving force while there is also no other major news around the corner.”

Reuters also suggest that profit taking in “hot concept stocks” may be contributing to the slide, following gains earlier this week.

The Shenzhen Stock Exchange announced on Monday it would require greater disclosure from companies experiencing sharp, unexplained movements in their share values, which in the past has been associated with insider trading and market manipulation, said Reuters.

There is also speculation over a pending crackdown on shadow banking products may behind the sharp and sudden decline in small cap stocks.

Whatever the reason, the losses are being sustained at present.

You can read more here.

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