HONG KONG: Chinese shares tumbled Monday after a rollercoaster ride, extending losses of the past two weeks, while Hong Kong also sank on expectations Greece will default on its debt and possibly crash out of the eurozone.
The losses came despite a surprise interest rate cut by the central People’s Bank of China at the weekend that analysts said was a response to the painful sell-off in mainland equities.
The benchmark Shanghai Composite Index dived 3.34 percent, or 139.84 points, to 4,053.03 on turnover of 904.2 billion yuan ($147.8 billion).
The index moved in a 10 percent range over the day, rising 2.5 percent in early trade before at one point losing as much as 7.58 percent. And analysts warned of further volatility.
The Shenzhen Composite Index plummeted 6.06 percent, or 151.56 points, to 2,351.40 on turnover of 631.2 billion yuan.
Hong Kong’s benchmark Hang Seng Index fell 696.89 points or 2.61 percent to 25,966.98 on turnover of HK$186.13 billion (US$24.02 billion), with the mainland losses adding to selling pressure in the city.
The slump put Shanghai into bear territory alongside Shenzhen, with the main market down 21.5 percent from its peak on June 12.
“You’d think you wouldn’t see this volatility in such a large equity benchmark,” Ankur Patel, chief investment officer at US-based R-Squared Macro Management, told Bloomberg News.
“The flows in and out have been so substantial and it’s been driven by retail investors. Those are the same characteristics you see in penny stocks.”
The correction will “probably last longer“, Haitong Securities analyst Zhang Qi told AFP, adding it had not been “long enough” so far.
When Shanghai peaked on June 12 it had risen more than 150 percent in 12 months, partly fuelled by margin trading – in which investors borrow cash to invest in stocks.
Analysts say the falls were mainly triggered by new restrictions on margin trading and accelerated by concern stocks were overvalued.
On Saturday China’s central bank cut interest rates 0.25 percentage points and reduced the amount of cash some banks must keep in reserve.
But the move did not arrest the sell-off.
“We have to bear in mind that the interest rate cut is the fourth in eight months, so the perceived implication of a rate cut on equity markets may have waned,” said Bernard Aw, a Singapore-based strategist at IG Asia.
Regulators were considering suspending initial public offerings to stabilise markets, Bloomberg News quoted people familiar with the matter as saying.
Both Chinese exchanges opened higher on Monday but then the downward momentum resumed, followed by a recovery in mid-afternoon, and then another drop.
Monday’s official China Securities Journal carried a speech by the paper’s party secretary and editor-in-chief Wu Jincai which claimed mainland markets are set to enjoy a “golden time” that will last for more than three decades.
Shanghai-listed Everbright Securities plunged by its 10 percent daily limit to 24.95 yuan while Shenzhen-listed Shanxi Securities also lost 10 percent to 16.61 yuan.
Shandong Lukang Pharmaceutical dived by its 10 percent daily limit to 15.73 yuan in Shanghai while Anhui Fengyuan Pharmaceutical also crashed 10 percent to 12.57 yuan in Shenzhen.
Hong Kong tracked a global retreat fuelled by Greece’s decision to pull out of debt reform talks and call a referendum for Sunday on its creditors’ proposals.
The shock announcement at the weekend came after five months of failed negotiations, with Athens unwilling to yield to demands for more austerity in order to release much-needed cash.
Greece is now unlikely to meet a June 30 repayment deadline, putting it in default and at risk of exiting the eurozone.
“The key thing is that this is untested and people are selling on that uncertainty,” Chad Padowitz, Melbourne-based chief investment officer at Wingate Asset Management Ltd., said.
“Markets have been accustomed to the can being kicked down the road indefinitely and this may be that the buck stops here. It’s a very fluid situation and it’s never really been tested in this way before.”
Industrial and Commercial Bank of China tumbled 7.58 percent to HK$6.10, Lenovo lost 5.67 percent to HK$10.32 and casino operator Galaxy Entertainment sank 5.48 percent to HK$31.05.
HSBC shed 2.36 percent to HK$70.25, Sino Land lost 2.62 percent to HK$12.64 and Cathay Pacific dropped 1.13 percent to HK$19.26. -AFP