China's support measures crumble as Shanghai stocks dive 8.5 per cent in biggest daily drop for 8 years

Tuesday 28th July 2015

Government action to prop up stocks buckles under selling pressure as the Shanghai index suffers biggest one-day fall in eight years.

Ray Chan, Celine Ge and Enoch Yiu

Monday, 27 July 2015

Mainland stocks took another dive yesterday as the government's unprecedented measures to prop up the market seemed to peter out after managing to reverse a rout for three weeks.

The Shanghai Composite Index dropped 8.48 per cent, the biggest single-day fall in eight years and the second biggest on record. This was the first time the key index fell more than 5 per cent in a day since July 8, when Beijing stepped in to halt a crash that wiped out US$3 trillion from the value of the country's stocks.

The Hang Seng Index fell 3.09 per cent. All 50 stocks in the index ended down, with oil majors PetroChina and Sinopec Corp settling at 52-week lows.

The H-share index lost 3.84 per cent.

The Shenzhen Composite Index dropped 7 per cent, while the ChiNext index of small-cap technology and medical stocks tumbled 7.4 per cent.

Turnover in Shanghai and Shenzhen fell to 1.39 trillion yuan (HK$1.76 trillion) from 1.66 trillion yuan on Friday. More than 1,700 stocks in the two exchanges fell by their daily 10 per cent limit, with only 78 ending higher.

Continuing the heavy-handed measures that stopped last month's rout, the China Securities Regulatory Commission last night said it was investigating two more firms that ran stock-trading platforms - Shanghai Mingchuang Software Technology and Zhejiang Hexin Tonghuashun Network Information.

The CSRC has opened a probe into Hundsun Technologies, a financial services software provider controlled by Alibaba Group Holding founder Jack Ma Yun, which connects small financial institutions with brokerages through its Homs platform.

The regulator had warned on Friday it would step up its crackdown on illicit selling by major stakeholders, insider trading and price manipulation.

Nine listed firms, including state-owned contractor China Railway Erju and Shanghai Jinlitai Chemical, yesterday said their controlling shareholders had been placed under investigation.

"The high-profile announcements of the listed companies by the CSRC may reflect the fact that China wants to send a clear message to the companies and major shareholders that they should support the market and not sell shares when the government is trying to prop it up," said Jeffrey Chan Lap-tak, the chairman of Hong Kong Securities Association.

Even if the major shareholders toe the line, that message seemed to be lost on retail investors as stocks fell across the board yesterday, including safe sectors such as state-owned banks and insurers.

"The soft industrial figures are adding to the downward pressure," said Gerry Alfonso, a director of trading at Shenwan Hongyuan Securities in Shanghai.

Fresh data yesterday showed profit at China's industrial firms fell 0.3 per cent last month from a year ago, reversing an upward course seen in April and May.

The sell-off in China hit markets worldwide, with US stocks opening lower yesterday. The Dow Jones Industrial Average edged down 0.5 per cent and the S&P 500 slipped 0.37 per cent.

European equities were heading for their fifth consecutive fall, with worries over China overshadowing forecast-beating corporate results.

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