China's stock
markets plunged on Thursday, with indexes dropping over 6 percent in
record high turnover as investors rushed to sell after more brokers
tightened margin trading requirements for clients and the central bank
drained money market liquidity.
The CSI300 index .CSI300 and the Shanghai Composite Index .SSEC
both slumped in late afternoon trade, ending down and 6.5 pct,
respectively, their worst day since January 19 when markets fell over 7
percent on an earlier crackdown on margin trading. In terms of points
shed, the two indexes suffered their heaviest single day loss since
2008.
The Shanghai Stock Exchange saw A share turnover hit 1.2 trillion yuan ($193.57 billion), an all time record high, on the selloff.
In Hong Kong, the Hang Seng Index .HSI closed 2.2 percent down, and the China Enterprises Index .HSCE lost 3.5 percent, and some some major mainland shares were trading at a discount to their Hong Kong counterparts.
China's stock market has surged over 140 percent over the past 12 months despite a flagging economy, as retail investors, including university students, barbers and janitors piled into the world's best performing market, though economists have warned that, based on economic fundamentals, the rally was unjustified.
Official data shows the surge has been accelerated by cheap credit, with the outstanding value of margin finance hitting a record 2 trillion yuan on Tuesday.
On Thursday morning at least three Chinese brokerages, including Guosen Securities Co 002736.SZ, Southwest Securities Co (600369.SS) and Changjiang Securities Co 000783.SZ said they would tighten margin requirements.
"The brokerages are front running what the regulator wants to do," said Bernard Aw, an analyst at ING Markets in Singapore.
Haitong Securities (600837.SS) and GF Securities (000776.SZ) had made similar moves earlier in the week.
"This is no longer an individual case, but an industry-wide campaign," said Zhang Chen, analyst at Shanghai-based hedge fund Hongyi Investment. "Clearly, they got guidance from regulators, and this shows a change of government's attitude toward the margin trading business."
The Shanghai Stock Exchange saw A share turnover hit 1.2 trillion yuan ($193.57 billion), an all time record high, on the selloff.
In Hong Kong, the Hang Seng Index .HSI closed 2.2 percent down, and the China Enterprises Index .HSCE lost 3.5 percent, and some some major mainland shares were trading at a discount to their Hong Kong counterparts.
China's stock market has surged over 140 percent over the past 12 months despite a flagging economy, as retail investors, including university students, barbers and janitors piled into the world's best performing market, though economists have warned that, based on economic fundamentals, the rally was unjustified.
Official data shows the surge has been accelerated by cheap credit, with the outstanding value of margin finance hitting a record 2 trillion yuan on Tuesday.
On Thursday morning at least three Chinese brokerages, including Guosen Securities Co 002736.SZ, Southwest Securities Co (600369.SS) and Changjiang Securities Co 000783.SZ said they would tighten margin requirements.
"The brokerages are front running what the regulator wants to do," said Bernard Aw, an analyst at ING Markets in Singapore.
Haitong Securities (600837.SS) and GF Securities (000776.SZ) had made similar moves earlier in the week.
"This is no longer an individual case, but an industry-wide campaign," said Zhang Chen, analyst at Shanghai-based hedge fund Hongyi Investment. "Clearly, they got guidance from regulators, and this shows a change of government's attitude toward the margin trading business."
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