Chinese stocks fall further

Mainland Chinese shares have fallen further today (June 7th) despite fresh measures from the government aimed at stemming the sell-off in the volatile market.

The Shanghai Composite Index fell 2.9 per cent to 3,668.59 today and the Hong Kong's Hang Seng shed one per cent to 24,972.54. Chinese shares have fallen nearly 30 per cent after hitting a peak on June 2nd. This represents a loss of £1.5 trillion. Over the week-end, Chinese authorities announced measures to support brokerages and fund managers through the purchase of massive amounts of stocks.

State media quoted by the BBC said 21 brokerages had put more than 128 billion yuan (£13 billion) into a stabilisation fund to meet their weekend pledges to support the market. About 57 mutual fund houses were also reported to have started buying equities using 2.16 billion yuan of their own money.

But all measures introduced by the Chinese authorities – including the fourth interest rates cut since November and a relaxation of margin lending rules – have so far failed to stop the downward spiral.

Government measures "not strong enough"

Qi Yifeng, analyst at consultancy CEBM, told Reuters that government measures were not strong enough to reverse the downtrend, "especially as it was a liquidity issue for many who had borrowed to buy shares and were now forced to sell to meet margin calls."

"It's just a matter of whether it will fall more slowly, or continue to slump in freefall," he said.

State authorities have even blamed this economic instability on calculated “foreign forces", with China's financial regulator saying it will investigate suspected market manipulation, and be looking into whether parties were mis-selling financial products.

Local reports said more than 200 Chinese-listed firms would halt trading of their shares, in an attempt protect themselves from the falling stock markets.

However, many analysts believe that the market is autocorrecting. The Shanghai stock market has more than doubled over the past year, even though economic fundamentals do not justify the rise.

They blame margin borrowing, investor exuberance and monetary easing for pushing up Chinese stocks to stratospheric levels, with a correction all but inevitable.

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.