Shanghai stocks plunged 5.9% Wednesday, with concerns about the outlook for China’s economy dragging down other markets in the region as well.
The latest decline, following two days during which efforts by China’s government to prop up the market brought a modicum of stability, saw the Shanghai Stock Exchange composite index close at 3,507.19, off 32% from the market’s June 12 high of 5,178.19.
Among major markets in the Asia-Pacific region, Japan’s TOPIX index dropped 3.3% to 1,582.48; Australia’s S&P/ASX index fell 2% to 5,469.50; and South Korea’s KOSPI index slipped 1.18% to 2,016.21.
The central role played by margin borrowing in the more than 100% rally by China’s A-shares markets since late last year has been key to the speed, scale and persistence of the current correction, said Charles Salvador, director, investment solutions with Z-Ben Advisors, a Shanghai-based consultancy on financial market business opportunities in China, in a telephone interview.
China’s other major A-shares market in Shenzhen suffered a smaller fall Wednesday, with the composite index there dropping 2.5% to 1,884.45. Hundreds of smaller-cap companies listed in Shenzhen have moved to suspend trading in their shares in recent days.
Some market players said the inability of retail investors facing margin calls in China to sell those suspended shares has prompted them to sell their holdings on the Hong Kong stock exchange, the home of H shares listed by mainland companies.
On Wednesday, Hong Kong’s Hang Seng index tumbled 5.8% to 23,516.56, even though valuations, in terms of price-earnings ratios, are already very attractive, market players said.