China stock market freezing up as sell-off gathers pace

Wed Jul 8, 2015 8:17am EDT
 
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By Samuel Shen and Brenda Goh

SHANGHAI (Reuters) - China's tumbling stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended and indexes plunged after the securities regulator warned of "panic sentiment" gripping investors.

Beijing, which has struggled for more than a week to bend the market to its will, unveiled yet another battery of measures to arrest the sell-off, and the People's Bank of China said it would step up support to brokerages enlisted to prop up shares.

The CSI300 index .CSI300 of the largest listed companies in Shanghai and Shenzhen closed down 6.8 percent, while the Shanghai Composite Index .SSEC dropped 5.9 percent.

With nearly half the market on a trading halt and another round of margin calls forcing leveraged investors to dump whatever shares could find a buyer, blue chips that had been supported by stabilization funds earlier in the week bore the brunt.

"I've never seen this kind of slump before. I don't think anyone has. Liquidity is totally depleted," said Du Changchun, an analyst at Northeast Securities.

"Originally, many wanted to hold blue chips. But since so many small caps are suspended from trading, the only way to reduce risk exposure is to sell blue chips."

More than 30 percent has been knocked off the value of Chinese shares since mid-June, and for some global investors the fear that China's market turmoil will destabilize the real economy is now a bigger risk than the crisis in Greece.

"Also, the ripple effect from the market correction has yet to show up," wrote Bank of America Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."   Continued...

 
Investors look at computer screens showing stock information at a brokerage house in Shanghai, China, July 8, 2015.  REUTERS/Aly Song