Chinese Equities Plummet to Three Month Low

China’s benchmark stock index tumbled to a three-month low as another round of government support measures failed to allay concern that margin trades will keep unwinding at a record pace.

The Shanghai Composite Index slid 5.9 percent to 3,507.19 at the close. With at least 1,331 companies halted on mainland exchanges and another 747 falling by the 10 percent daily limit, sellers were locked out of 72 percent of the Chinese market. They turned to everything from government bonds to Hong Kong shares and commodity futures to raise cash, sending China’s one-year note yield up by the most on record and sparking a 5.8 percent loss in the Hang Seng Index.

The rout rippled across global markets, dragging down U.S. index futures and fueling gains in haven assets such as the yen. Policy makers’ latest attempts to stop the selling, including measures to prop up small-cap stocks, were overshadowed by data showing an unprecedented liquidation of margin trades on Tuesday. Foreign investors extended a record three-day exodus as some said government meddling is making matters worse.

“There’s really panic out there,” said Tony Chu, a Hong Kong-based money manager at RS Investment Management Co., which oversees more than $20 billion. “I wouldn’t suggest catching the falling knife.”

Traders unloaded 98.3 billion yuan ($15.8 billion) of shares purchased with borrowed money on the Shanghai exchange Tuesday, the 12th straight day of declines. A five-fold surge in margin debt over the 12 months through June 12 had helped propel the Shanghai index to a more than 150 percent gain.


Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell