China markets plunge in record turnover as margin traders take fright

Thu May 28, 2015 6:34am EDT
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By Pete Sweeney and Samuel Shen

SHANGHAI (Reuters) - 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: Quote), Southwest Securities Co (600369.SS: Quote) and Changjiang Securities Co (000783.SZ: Quote) 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.   Continued...

An investor looks at information displayed on an electronic screen at a brokerage house in Shanghai, December 8, 2014. REUTERS/Aly Song