China Stocks Fall as Traders Puzzle Over Sudden Late-Day Swings

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Chinese stocks fell suddenly in the last hour of trading, almost wiping out Wednesday’s rally and leaving investors in the dark about reasons for the moves.

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The Shanghai Composite Index slumped 2.2 percent to 3,705.77 at the close, erasing an earlier gain of 1.5 percent. Drugmakers and technology companies led declines. A gauge of 100-day price-swings rose to the highest level in six years. Trading volumes in Shanghai have halved from their peaks in June, while margin debt, which had fueled a world-beating rally for China’s stocks, declined to a four-month low.

Thursday’s trading was almost a reverse image of the previous day, when the Shanghai Composite surged in the last hour to close 3.4 percent higher. Volatility has increased this week as Monday’s 8.5 percent plunge by the benchmark gauge shredded a calm induced by unprecedented state intervention.

“There were no major macro developments,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “The disconnect with fundamentals continues making trading challenging.”

The government took a spate of unprecedented measures to stop a month-long rout that wiped out almost $4 trillion of market value, including allowing hundreds of companies to suspend trading, banning major shareholders from selling and arming a state-run financing vehicle with more than $480 billion to support the market.

The Shanghai index followed up the rout with a 13 percent rebound from the lows before slumping over the past week. Average intraday swings this week were 5.9 percent.

Drugmakers Slump

The CSI 300 Index lost 2.9 percent on Thursday. The ChiNext index of small-cap shares declined 4.9 percent. The Hang Seng China Enterprises Index fell 1.2 percent in Hong Kong, while the Hang Seng Index slipped 0.5 percent.

All 10 industries in the CSI 300 slid more than 2 percent, led by a 4.1 percent slump in the gauge of health-care companies. Lepu Medical Technology Co. plunged 8.3 percent, while Hualan Biological Engineering Inc. slid 5.2 percent. The drug sub-index has been the best performer over the past three month, falling 5.6 percent versus the 20 percent slump for the CSI 300.

PetroChina Co., long considered a favorite holding of state-linked rescue funds, snapped a three-day losing streak, adding 0.5 percent. The oil producer had been one of the biggest sources of support for the Shanghai Composite on big down days in late June and early July.

Leshi Internet Information & Technology (Beijing) Co. and East Money Information Co., the largest companies in the ChiNext, both fell more than 2 percent.

The outstanding balance of loans backed by share purchases fell by 0.6 percent to 881.7 billion yuan ($142 billion) on the Shanghai Stock Exchange on Wednesday, according to bourse data. That was the lowest level since March 16.

Supporting Measures

The drop in margin debt “means people are trying to get out of their positions,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. “And if the market doesn’t drop, it suggests the PBOC is doing the buying. It seems they are in the market, just not everywhere at once. Usually at the end of the day, and where they seem to think it’s needed most,” he said, referring to the People’s Bank of China.

A combined 513 companies were suspended from mainland exchanges on Thursday, or 18 percent of all listings, down from 518 the previous day.

China’s economy should prove resilient enough to withstand the stock-market rout that has prompted efforts by the government to stem the decline, IMF Managing Director Christine Lagarde said. No one should be surprised that authorities have taken steps to “maintain an orderly movement,” she said.