China markets Plunged in record turnover as margin traders’ takes fright

April 25, 2023 3:07 am5 commentsViews: 71

An investor looks at information displayed on an electronic screen at a brokerage house in Shanghai, December 8, 2014. REUTERS/Aly Song  This Thursday, china stock market completely plunged on, with. The investors rushed to sell as indexes witnessed a record dropping of about 6% in turnover.

The shanghai Composite Index SSEC and the CS1300 index both slumped in the afternoon trade and 6.5 % respectively. Earlier, the market witnessed the worst day on January 19 when two indexes suffered their biggest single day loss.
There was a share turnover hit of 1.2 trillion Yuan, which was witnessed by the Shanghai Stock Exchange. In Hong Kong, China Enterprises Index HSCE[IND:HSCEI] closed 3.5% down and the Heng Seng Index[IND:HSI] lost 2.2%. Apart from this, many mainland shares were also traded at the Heng Seng counterparts.

Over the past 11 months, the stock market of china has witnessed a great surge of about 140%. Many retail investors like barbers, carpenters, or even school or college students piled into the market, which is considered to be one of the world’s best performing market. Chinese economy is considered as a flagging economy. Based on economic fundamental, many of the economists believe that the rally was unjustified.

Many official reports were published on this incidence and according to the official data; the surge of capital market of china has been accelerated with the very cheap credit. The record of 2 trillion Yuan was due to outstanding margin finance.

The top three Chinese brokerages ad decided to tighten margin requirements, this Thursday morning. The three Chinese’s brokerages that declared of tightening margin requirements are Gousen Securities Co[CH:GUOSNZ], Changjjang Securities Co[CH:000783] and Southwest Securities Co[CH:600369].

Liquidity Drains Plays on Nerves

Many indexes plunged sharply and slumped down to over 7%. There are many key mainland sub indexes including Cs 1300EN, property SSEP, energy and financial services.

There was a fall of 6 to 8% in shares of various Chinese brokerages

An analyst in Kaiyuan Securities in Xian, named Tian Weidong said that the financial is witnessing the sharp drop because there is a new that an asset management company, called Central Huijin Holdings which is controlled by Beijing had decided to cut down its stake China Construction Bank[SHA:601939] and CBC[PM:CHIB]as well. Both are state owned back and are index heavyweights.

Om Wednesday morning, Hong Kong Stock Exchange published this news in its disclosure report. Tian Weidong also added that there were many investors who just wanted to sell, just looking for a suitable reason. And fluctuations in margin finance spark the stampede.

The Central Bank step to mop up liquidity in the interbank network was one of the contributing factor as well as encouraging factor in the selloff. The information of how much money was actually drained is not known yet. The risk of volatility intensifying is warned by many analysts.


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