Chinese stocks continued to drop during volatile trading, extending the largest one-day loss since 2007, as worries continued to mount that government intervention will fail to prop markets.
The Shanghai Composite finished the day down 1.7% to 3,663, after decreasing as much as 5.1% during the day. While energy and technology shares sunk, purchases of financial companies prevented the market from tanking. The Composite index in Shenzhen dropped 2.3% while a tech-heavy ChiNext fell 3.8%.
Beijing’s unprecedented and extraordinary measures to prevent the market from tanking appears to still be failing to boost investor confidence. Some of the measures the government has taken included banking short selling, suspending IPOs, and share-buying by state-owned enterprises.
Continued state support
A late Monday night statement from the central bank promised to maintain monetary policy stability, followed by the People's Bank of China announcing on Tuesday that it would inject 50 billion yuan ($8.05 billion) into money markets. The central bank also said, in a statement before the stock market opened, that it would use monetary tools to maintain appropriate levels of liquidity, a clear signal that the continued monetary easing that some analysts have predicted could be in the near future.
State-owned media have also been attempting to boost investor confidence by publishing commentaries saying China’s economic fundamentals were strong, running strong editors across digital and print media across major cities in the country.
David Li, a former professor of economist at Tsinghua University, who sat on the Eleventh CPPCC National Committee, wrote an article called “A Stock Market Drop Does Not Mean a Real Crisis” in Sina’s finance section that arguing that although there is room for the markets to improve their infrastructure, the Chinese recent sell off is nothing compared to what happened to the global financial crisis that America started in 2008 and the financial panic that Thailand caused in 1997. “
The Shanghai News had a front page editorial that argued that investors should logically analyse the latest round of sell offs and keep in mind that China’s economic strength is still stable.
An editorial recently published in the China Daily called “Stable Chinese Stock Market Good for World” argued that Beijing’s actions have been justified by the apparent stabilization for the market.
“The initial stabilization of the Shanghai and Shenzhen stock markets has fully justified the decision by China to press the risk management button and proven China's determination and capability in financial governance. The solid progress over the couple of weeks has also showcased the vitality and validity of the world's second-largest economy and its financial system,” said the anonymous writer.
Sell-off muted in regional markets
In a research note from UBS that came out on Monday called “Investing in China” the bank says that recent volatile Chinese equities will only have a limited impact on the region’s markets.
“In the previous sell-off in early July, the ripple effects from the Chinese stock market rout into Asia Pacific equities, currencies and related commodities were limited, even at the height of panic selling. Although volatility could stay elevated in the onshore Chinese equity markets, we believe the financial contagion can also be contained this time for the following reasons,” wrote UBS’s analysts—Hyde Chen, Ting Gao, Gary Tsang and Alan Gao.
Today the Nikkei was down .10%, while the Hang Seng Index saw a rise of .62% andTSEC seeing a rise of .30%.
