Chinese stocks tumbled the most in three weeks as traders reduced stimulus bets and speculated the government will pare back efforts to prop up equities.
The Shanghai Composite Index sank 6.2 percent to 3,748.16 at the close, the biggest loss since an 8.5 percent rout on July 27. About 35 stocks fell for each that rose, while more than 600 companies plunged by the daily 10 percent limit. The Hang Seng China Enterprises Index slid 1.75 percent to its lowest level in nine months in Hong Kong.
Chinese investors lowered expectations for further monetary stimulus after data Tuesday showed home-price gains are spreading. Odds of an imminent cut to lenders’ reserve requirements dropped after the central bank injected cash into the financial system through its weekly open-market operations. The securities regulator said Friday that China Securities Finance Corp., the state agency tasked with supporting share prices, will reduce buying as volatility falls.
“Investors ran for the exit when the government failed to step in to support the market,” said Steve Wang, the chief China economist at Reorient Financial Markets Ltd. in Hong Kong. “The CSF has become a main player in this market so everyone is watching it. People panic when it stops buying.”
Volatility in Chinese markets has reverberated around the world over the past two months as slowing growth complicates efforts by the ruling Communist Party to loosen its grip on the financial system and shift to a more consumer-driven economy.
The Shanghai Composite had rebounded 14 percent from its July 8 low through Monday after the government intervened to end a $4 trillion rout. The index rallied 5.9 percent last week even as the yuan’s biggest plunge in 21 years roiled global markets.
While China Securities Finance will remain in the stock market for years to come, it won’t normally step in unless there’s unusual volatility and systemic risks, the China Securities Regulatory Commission said Friday. The regulator said it will focus on letting the market self-adjust as volatility falls.
The agency was a linchpin of the government’s market rescue effort, with $483 billion of firepower and the potential to add $322 billion more. Officials have also banned large shareholders from selling stakes, ordered state-run institutions to buy stocks and temporarily allowed more than half of listed companies to halt trading.
New home prices increased in 31 of the 70 cities tracked by the government, up from 27 the previous month, the statistics bureau said Tuesday. The average price of the 70 cities rose 0.17 percent from June, gaining for a third consecutive month, according to Bloomberg calculations of official data.
The prospects for monetary easing are “dwindling away because the property market is doing much better,” Erwin Sanft, the Hong Kong-based head of China strategy at Macquarie Group Ltd., said in an interview with Bloomberg Television. “For the stock market, it’s not great news.”
The People’s Bank of China tripled the amount of cash added to the financial system in its open-market operations, helping to ensure an adequate supply of funds as it supports the yuan following last week’s devaluation. The central bank conducted 120 billion yuan ($18.8 billion) of seven-day reverse-repurchase agreements, the most since January 2014.
Traders sold stocks as the Shanghai gauge approached the key 4,000 level, said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai.
“The 4,000-point level is a temporary ceiling that’s hard to break through now, unless there are some catalysts such as further government support for equities or the bottoming-out of the economy,” Wei said.
China Shenhua Energy Co., China Shipbuilding Industry Co. and CRRC Corp. were the biggest drags on the benchmark Shanghai gauge, falling more than 8 percent. The Shenzhen Composite Index tumbled 6.6 percent.
The median stock on mainland bourses traded at 72 times reported earnings Monday, higher than any of the world’s 10 largest markets. It was 68 at the peak of China’s equity bubble in 2007, according to data compiled by Bloomberg.
Increased volatility in China’s stocks and currency markets is spurring outflows. Net selling of Chinese and Hong Kong equities by foreigners reached $531 million in the week to Aug. 12, the ninth week of sales out of the past 10, according to China International Capital Corp.
Yuan positions at China’s central bank and financial institutions fell by the most on record in July, a sign capital outflows picked up and the central bank stepped up intervention to support the yuan.
— With assistance by Shidong Zhang, Kana Nishizawa, and Fox Hu