Chinese stocks smashed in late sell-off

The slumber in China’s stock market came to an abrupt end this afternoon with markets plunging into the close.

The benchmark Shanghai Composite index finished down 6.12% at 3,749.1 points, its largest percentage decline since July 27.

Providing an indication of the price action seen in recent months, the fall was only the sixth-largest percentage decline so far in 2015.

Over the past 12 months the index is still up by 67%.

All sectors finished deep in the red with telecommunications, IT, industrials, materials, consumer cyclicals and utilities all falling by more than 7%. Energy and financials were spared the worst of the declines, sliding by 2.38% and 3.81% respectively.

The losses in Shanghai were mirrored across the nation, particularly in small-cap stocks which underperformed their larger peers.

The CSI 300 and 500 indices, those which contain the 300 and 500-largest firms by market cap in Shanghai and Shenzhen, fell 6.19% and 7.47% respectively.

Elsewhere the Shenzhen Composite and tech-heavy ChiNext indices finished with losses of more than 6%.

The SSE 50, made up of the 50-largest firms my market capitalisation in Shanghai, was the relative outperformer, only declining 5.57%.

In late trade the Chinese renminbi, the centre of attention last week after the PBOC unexpectedly allowed market forces to play a greater role in determining its trading level, is modestly weaker.

The USD/CNY currently buys 6.4017, above the PBOC’s Tuesday fixing level of 6.3966.

According to a report from Bloomberg, concerns that China’s government may pare back it efforts to support the market may have been behind the sharp plunge seen this afternoon.

“The securities regulator said Friday China Securities Finance Corporation (CSFC) will reduce buying in the stock market as volatility falls. Investors are also cutting expectations of further stimulus after data showed a stronger housing market and the central bank injected cash into the financial system, which reduces odds of an imminent cut to lenders’ reserve requirements”, said Bloomberg.

While it occurred well after the market began to plunge, ratings agency Moody’s released a note late on Tuesday in which they stated “the depreciation in the renminbi that has followed the shift in the mechanism for determining the daily fixing rate of the Chinese currency against the dollar is credit negative for Chinese property developers, given their significant exposure to foreign-currency debt, the majority of which is denominated in USD”.

“At end-2014, an average 35.5% of the debt structures of the 43 rated developers analysed in the new Moody’s report comprised foreign currency-denominated debt – including offshore bonds and bank loans – and this foreign-currency risk is largely unhedged, the group noted.

Earlier in the session Chinese new home prices fell by 3.7% in the 12-months to July, an improvement on the 4.9% decline reported in June.

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