Investors monitoring stock market movements at a brokerage house in Shanghai. Chinese shares lost 8.5% to 3,209.91 points yesterday, its lowest level since March and down less than a percentage point for the year.

Reuters/Shanghai


China stock markets slumped again yesterday, giving up all their gains for the year on a massive sell-off that dragged down regional markets, with even some state media saying the government rescue attempt had now failed.
Chinese markets were down more than 9% during the day and had only slightly recovered by the close of trade, the worst daily performance since 2007 and a hair’s breadth from the worst day since 1996, with traders blaming regulators’ failure to act over the weekend after markets lost 11% last week.
The downside was limited mostly by rules preventing any given stock from losing more than 10% a day, and by the fact that many company shares are still under trading halts.
As much as 80% of China’s tradable stocks hit the downside limit during the day, and ominously all index futures contracts, for the CSI300, CSI500 and SSE50 indexes were down the maximum 10%.
After a year of heady gains, Chinese markets have been buffeted by increasing signs that economic growth is faltering, and central government’s efforts to reassure and backstop stock investors have been sunk by a succession of weakening indicators.
Exchanges not only gave up all the gains made from Beijing’s unprecedented stock market rescue in July, in which hundreds of billions of state dollars were ordered into the market, but have also now for the first time entered negative territory for the year.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 8.8% to 3,275.53 points and is now down over 7% for the year, while the Shanghai Composite Index lost 8.5% to 3,209.91 points, its lowest level since March and down less than a percentage point for the year.
The Hang Seng index fell 5.2% to 21,251.57, and other major Asian markets slumped as global investors grow increasingly concerned at signs that Beijing’s policymaking has grown not only more erratic but less effective.
“Policymakers look lost,” wrote Oliver Barron, analyst at investment bank NSBO in Beijing in a research note, noting that confusion about intentions and approaches extended from stocks into monetary and exchange rate policy.
“But the market needs bigger things: growth, reform, easing. Piecemeal support is not enough anymore.”
Domestic analysts said investors had hoped for central bank action over the weekend, seen as justified both by a surprisingly weak preliminary reading of manufacturing activity in August, and by last week’s stock market slide.
At the beginning of the stock market crash the central bank cut rates and explicitly said it was supporting the stock market. Beijing has invested much capital, both financial and political, in propping up markets, and many assumed it would be forced to continue to buy up shares to maintain its credibility.
But no easing came at the weekend, and in the past two weeks the “national team” of brokerages, mutual funds and other state-owned institutional investors have stood aside while markets fell.
While the national team originally said it would keep buying shares until the SSEC returned to 4,500 points, two weeks ago the CSRC said it would let market forces play a greater role in the stock market, which investors took to imply that government was backing off on its attempt to restore a bull market through brute force, contributing heavily to last week’s sell-off.
If that implication is correct, Beijing is kissing goodbye to the 900bn yuan ($141bn) Goldman Sachs estimated it has spent trying to prop up the market so far.
On Monday, there was no evidence of any attempt to buy into the market by state-connected funds, leaving some domestic investors to speculate that regulators were letting markets dive further to provide a lower entry point for domestic pension funds, which will now be allowed to add more stocks to their portfolios.
Many retail investors had been encouraged to return to the market after the crash in June, with company executives leading employees to buy back company stocks, and others being encouraged by patriotic appeals to buy shares to “defend the stock market” against a shadowy cohort of investors “maliciously” shorting the market.
Persuading them to do so again will be a much harder task.
“I regret not having fled the market last week,” said a retail investor who identified herself only by her surname, Zhang. “With the market falling like this, there’s no hope at all. It’s already a bear market and the government is responsible,” she said.