Graphics: GT
Brokerages impose stricter rules on margin trading
The Chinese mainland's stock markets ended a bullish seven straight days and plummeted more than 6 percent Thursday.
The Shanghai Composite Index plunged 6.50 percent or 321.45 points to close at 4,620.27 points on Thursday. The Shenzhen Composite Index shed 6.19 percent or 1,050.58 points to close at 15,912.95 points.
The CSI 300 Index of the biggest companies traded in Shanghai and Shenzhen sank 6.71 percent or 347.43 points to 4,834.01 points.
Total turnover on the two bourses reached a record high of 2.42 trillion yuan ($390.23 billion), up from the previous trading day's 2.15 trillion yuan.
"The record high turnover implies that abundant liquidity backed investors who joined the stocks markets with borrowed money," Li Daxiao, chief economist with Shenzhen-based Yingda Securities Co, told the Global Times on Thursday.
Both Shanghai and Shenzhen stock bourses rose seven consecutive days until Thursday's fall and total turnover exceeded 2 trillion yuan for the last four trading days. In the morning session, the stocks markets opened in positive territory heading toward the 5,000-point mark in Shanghai for the first time since early 2008, but changed direction at around 10:30 a.m. and began to plunge. By the end of trading, more than 500 stocks declined by the daily limit of 10 percent.
An investor with more than 10 years' experience lost half a million yuan in Thursday trading after he bought shares in a company.
"I bought stocks in a company that seemed to have good value but the market's decline dragged down the company's stocks as well," the Beijing-based investor who requested anonymity told the Global Times on Thursday. But he remains upbeat that the market will recover soon.
Thursday's plunge came as investors digest news that had a negative impact on the markets.
On Thursday morning, some brokerages including Guosen Securities and Southwest Securities Co announced stricter margin financing rules. Guosen said in a statement on its website that 275 stocks can no longer be used as collateral against borrowing, effective immediately.
Guosen's decision came less than a month after some brokerages, including CITIC Securities Co and Haitong Securities, took the same measure for margin trading on May 5.
Margin trading, in which investors borrow money to buy stocks, has repeatedly broken records in recent trading sessions.
On Thursday, the Shanghai Securities News reported that the country's regulators had recently requested banks to submit data regarding money flows into the stock market.
Brokerages lost more than 9 percent on average on Thursday, with Shanxi Securities and Founder Securities dipping by the daily limit of 10 percent.
"Central Huijin Investments' sold shares in banks and the central bank's draining of money from the markets had some impact on the markets," Shao Yu, chief economist at Oriental Securities, told the Global Times on Thursday.
Cetral Huijin Investment, a subsidiary of China's sovereign wealth fund, China Investment Corp, revealed in stock filings dated Tuesday that it sold its stakes in two State-owned banks, ICBC and China Construction Bank (CCB), worth billions of yuan.
"It was a rare move by Huijin and it might indicate some portfolio changes by big investors," Shao said, adding that he thought the market had overreacted to it.
ICBC fell by 5.03 percent to 5.10 yuan and CCB declined by 5.92 percent to 6.36 yuan.
Also, the People's Bank of China, the country's central bank, drained tens of billions of yuan from the financial system by selling repurchase agreements to targeted financial institutions, Reuters reported Thursday.
A seventh batch of IPOs this year, totaling 23, will begin next week, led by China National Nuclear Power Co, and is expected to freeze as much as 8 trillion yuan in funds. The new round of IPOs combined with other factors also contributed to Thursday's plunge, Li said.
Thursday's fall might be a short-term correction but investors should be aware that the valuations of mainland stocks are the world's highest, according to Li.
The benchmark Shanghai Composite Index and the Shenzhen Component Index have risen by 42 percent and 44 percent, respectively, since the start of the year.
State-owned Xinhua News Agency published a commentary on Thursday saying that "moderate correction is good for the health of the stock market."
It also quoted data since 2000, saying that in 28 stock market slides above 5 percent, three-fourth of them have rebounded the next day.
