BEIJING: China’s stocks sank in volatile trade, with the benchmark index poised to enter a bear market, as an interest-rate cut over the weekend failed to stem the nation’s biggest rout since 1996.
The Shanghai Composite Index tumbled 3.8 per cent to 4035.48 at the morning break, taking declines from its June 12 peak to more than 20 per cent. A gauge of technology stocks sank 8 per cent Monday to lead declines among industry groups. The Shanghai index’s 10-day volatility reading jumped to the highest level since 2008.
“If breached, the 20 per cent bear market line will worry many, especially as China’s market is often technically driven,” said Steve Wang, chief China economist at Reorient Financial Markets in Hong Kong. “Investors see the rate cuts as an opportunity to take profit as there’s no clear sign the economy is stabilizing. Second-quarter GDP growth is bound to go below 7 per cent and people feel uncertain about a third-quarter rebound.”
Investors who use borrowed money to buy equities on the Shanghai bourse cut their holdings for a fifth day on Friday. Margin debt outstanding on the Shanghai Stock Exchange dropped 2.5 per cent to 1.39 trillion yuan ($288 billion), the most since February. The People’s Bank of China announced on June 27 a 25 basis point reduction in the benchmark lending rate, while also lowering reserve-requirement ratios for some lenders.
