1. Skip to content
  2. Skip to main menu
  3. Skip to more DW sites

China stocks plummet again

July 7, 2015

Shares listed on the Shanghai and Shenzen blue-chip indices fell sharply on Tuesday despite measures to brake plunging prices. At the weekend, the government halted IPOs and announced fresh funds to prop up the markets.

https://p.dw.com/p/1Ftot
China Maklerfirma in Shanghai
Image: Reuters//A. Song

Chinese stocks dropped again on Tuesday, with the benchmark Shanghai Composite Index down over 3 percent at midday before closing down 1.3 percent. The Shenzhen Composite Index, which tracks stocks on the country's second exchange, slumped 5.3 percent.

Since mid-June, Chinese equity markets have seen around 30 percent knocked off their value. Global investors have grown increasingly concerned about China's volatile stock markets, fearing a full-blown crash could destabilize the world's second-biggest economy.

At the weekend, the government announced a curb on initial public offerings (IPOs) and orchestrated brokerages and fund managers to promise to buy at least 120 billion yuan ($19.3 billion) of stocks to prop up the markets.

The measures saw shares rise slightly on Monday, but the relief was short-lived. "The slumping Chinese stock market has raised concerns of systemic risks," ANZ Banking Group said in a research note on Monday.

Qi Yifeng, analyst at consultancy CEBM, told the Reuters news agency that the government had not done enough to reverse the downtrend. "It's just a matter of whether it will fall more slowly, or continue to slump in freefall," he said.

The Chinese equity markets are dominated by retail investors, who account for around 85 percent of trading, a factor that contributes to the extreme volatility of Chinese equities.

In 2014, equity markets surged dramatically, despite the country's slowing pace of economic growth. Market value nearly doubled in the year to mid-June, before shares started going into freefall. Worryingly for Chinese authorities, much of the stock-buying that drove up prices was speculative - and funded by borrowed money.

In consequence, if there is a dramatic plunge in the market that wipes out millions of retail investors, banks' balance sheets could end up having to absorb large losses.

Analysts say one factor driving the downward spiral in prices is that investors who bought shares with credit from brokers - known as margin lending or margin trading - are being forced to sell their shares to repay loans.

ng/ nz (Reuters, AFP, AP)