Chinese shares plunge more than 7 per cent in afternoon trade


Business, Market

On Saturday China's central bank announced interest rate cuts of 0.25 percentage points

Chinese flag (Photo: AP)

Shanghai: Chinese shares tumbled more than seven per cent in afternoon trade, extending losses from the past two weeks despite a surprise interest rate cut at the weekend. The benchmark Shanghai Composite Index tumbled 7.35 per cent, or 308.38 points, to 3,884.49. The Shenzhen Composite Index, which tracks stocks on China's second exchange, plunged 7.63 per cent, or 191.04 points, to 2,311.92.

The slump put Shanghai firmly into bear territory alongside Shenzhen, with the main market down almost 25 per cent from its peak on June 12, little more than two weeks ago. It was also below the symbolic 4,000-point level for the first time since April 9. "The market's correction may not be over yet as downward pressure coming from profit-taking and stricter margin trading rules may not have been completely digested yet," Haitong Securities analyst Zhang Qi told AFP.

On Saturday China's central bank announced interest rate cuts of 0.25 percentage points and reduced some reserve requirement ratios -- limits on the amounts banks can lend -- by 0.50 percentage points.

But the move did not arrest the declines of the previous two weeks. "We have to bear in mind that the interest-rate cut is the fourth in eight months, so the perceived implication of a rate cut on equity markets may have waned," Bernard Aw, a Singapore-based strategist at IG Asia Pte told Bloomberg News. "The market may be receiving mixed signals on what exactly the PBOC hopes to achieve with its rate cut."

Initially both Chinese exchanges opened higher on Monday, even as Greece imposed capital controls with its debt crisis threatening a possible eurozone exit. But then the downward momentum resumed. "It's all about sentiment," Wenjie Lu, Shanghai-based strategist at UBS Group AG told Bloomberg News. "The government needs to continue sending stronger signals and without them, the market seems to have further to go down."

When Shanghai peaked on June 12 it had risen more than 150 per cent over the previous 12 months. Analysts say the past fortnight's falls were mainly triggered by new restrictions on margin trading and accelerated by growing concern about overvaluations. But they said the government still wanted the positive trend to continue. "The rate cut is much earlier than our expectation," Nomura economists wrote in a note. "In this case, we think the easing is to contain the risk of systemic crisis rather than one to achieve faster growth."

Monday's official China Securities Journal carried a speech given by the paper's party secretary and editor-in-chief Wu Jincai that claimed Chinese stock markets are set to enjoy a "golden time" that will last for more than three decades. "As the luckiest generation in the history of the Chinese nation, we are honoured to witness the great Chinese national rejuvenation -- the realisation of the Chinese dream," Wu said. "During the process, a golden time that will last for more than 30 years will be generated in China's capital market."