China shares rally, but biggest monthly drop in seven years

Fri Jan 29, 2016 5:29am EST
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By Samuel Shen and Pete Sweeney

SHANGHAI (Reuters) - Chinese shares closed sharply higher on Friday, recovering some of the week's losses, but still recorded their biggest monthly fall in about seven years, which has knocked 12 trillion yuan ($1.8 trillion) off the value of its benchmark indexes.

The Shanghai Composite Index closed up 3.1 percent, but it lost twice that over the week and 22.6 percent since the beginning of January, its worst month since October 2008, when global financial markets were sent into a tailspin after the collapse of Lehman Brothers bank.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen ended up 3.2 percent for the day, but lost 21 percent for the month, its biggest decline since August 2009.

Trading was light throughout the month, as many investors are giving the market a wide berth, burnt not just by January's slump, which has taken indexes back to 2014 levels, but also last summer's 40 percent crash.

Beijing orchestrated a "National Team" response to the previous crash, taking regulatory action to arrest the selling and urging state-linked buyers to support the market, but there has been little sign of that in January.

"Market bulls have failed to organize meaningful resistance, the 'National Team' didn't inspire investors, while speculators chose to stand on the sidelines," said Zhang Mingyu, chairman of hedge fund house Shanghai YJ Investment Management Co.

"The market has been overwhelmed by gloom and looks like a bottomless pit," he added.

There is also the danger that falling markets generate their own momentum, as those who have used shares as collateral for loans or have bought stocks with borrowed money are forced either to meet margin calls or sell up.   Continued...

An investor walks past an electronic screen showing stock information at a brokerage house in Hangzhou, Zhejiang province, January 21, 2015. REUTERS/China Daily