China Stocks Extend $3.4 Trillion Tumble as Turnover Plummets

Updated on

China’s stocks fell for a fifth time in six days and turnover plummeted as unprecedented government intervention fails to stop a $3.4 trillion rout.

The Shanghai Composite Index lost 0.9 percent to 3,661.54 at the close. Telecom and health-care companies led losses. The volume of shares trading on the measure was 51 percent lower than the 30-day average.

The Shanghai Composite has fallen 29 percent from its June 12 peak as traders bet valuations were unsustainably high. The government has spent as much as 900 billion yuan ($145 billion) in the past two months to prop up the nation’s stock prices, according to Goldman Sachs Group Inc. China will release economic data for July this weekend, with exports estimated to have fallen 1.5 percent in a Bloomberg survey.

“The market needs its own strength to recover and investor sentiment is still unstable,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai, who said he’s keeping his holdings unchanged. “The coming economic data don’t seem to be good and will add additional pressure.”

Stocks also fell on concern the regulator will begin to unwind some of its market-supporting measures, starting with a resumption of new share sales.

The China Securities Regulatory Commission plans to convene a review meeting on Friday to discuss the private-placement plans of four companies, Tencent reported on its website, citing unidentified people from brokerages and law firms.

Concerns Unfounded

With more than 1 trillion yuan still available to support the market, those concerns may be unfounded, Goldman Sachs strategists led by Chenjie Liu wrote in a report dated Aug. 5.

A total of 517 companies are suspended from trading on the Shanghai and Shenzhen stock exchanges, or 18 percent of all listings, according to data compiled by Bloomberg. That’s up from 515 companies at the close of trade on Wednesday.

The CSI 300 Index declined 0.9 percent, with all the 10 industry groups falling. Hong Kong’s Hang Seng China Enterprises Index lost 0.3 percent, while the Hang Seng Index fell 0.6 percent.

China United Network Communications Ltd. dropped 1.8 percent. Shanghai RAAS Blood Products Co. retreated 3.9 percent, while Lepu Medical Technology (Beijing) Co. fell 3 percent.

The median stock on mainland bourses trades at 65 times reported earnings, higher than any of the world’s 10 largest markets, Bloomberg data show.

Margin traders increased holdings of shares purchased with borrowed money for a second day on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 842.3 billion yuan ($135.6 billion).

The strategist who called the top of the China market in April is bearish again. Thomas Schroeder, founder and managing director at Chart Partners Group Ltd., a provider of trading strategies linked to technical analysis, said the Shanghai Composite will decline to as low as 3,100 in two months, 16 percent below Wednesday’s close. The Hang Seng China Enterprises Index will drop about 10 percent, he said.

Slowing Chinese economic growth and collapsing commodity prices are heightening the chance that indexes will fall below key equity-market support levels, Schroeder said.

— With assistance by Shidong Zhang

Before it's here, it's on the Bloomberg Terminal. LEARN MORE