The great fall of China

China’s tumbling stock market showed signs of seizing up on Wednesday, as companies scrambled to escape the rout by having their shares suspended. And, indices plunged after the securities regulator warned of “panic sentiment” gripping investors.

The turn in sentiment affected global markets, including India. The BSE benchmark Sensex closed with a decline of 483.97 points, or 1.72 per cent from its previous close, to end at 27,687.72. At one point, it had fallen as much as 535 points. The National Stock Exchange’s Nifty closed at 8,363.05.
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Foreign institutional investors were net-sellers to the tune of Rs 354.32 crore, while domestic institutions were net-sellers of Rs 346.71 crore worth of stocks, showed provisional exchange data.

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Beijing unveiled yet another battery of measures to arrest the sell-off, and the People’s Bank of China said it would step up support to enlisted brokerages to prop up shares.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen, fell 6.8 per cent from its previous close, while the Shanghai Composite Index dropped 5.9 per cent. With nearly half the market on a trading halt and another round of margin calls forcing leveraged investors to dump whatever shares could find buyers, the blue-chips that had been supported by stabilisation funds earlier in the week bore the brunt.

“I have never seen this kind of a slump before. I don’t think anyone has. Liquidity is totally depleted,” said Du Changchun, an analyst at Northeast Securities.

“Originally, many wanted to hold blue-chips. But since so many small-caps are suspended from trading, the only way to reduce risk exposure is to sell blue-chips.”

About 30 per cent has been knocked off the value of Chinese shares since mid-June, and the fear for some global investors that China’s market turmoil will destabilise the real economy is now a bigger risk than the crisis in Greece.

All 12 of BSE’s sectoral indices ended in the red on Wednesday. The metal index, which fell 3.89 per cent on concerns of a Chinese slowdown, was the worst hit. The banking index was down 1.69 per cent on fresh worries over asset quality. Overall, nearly two stocks declined for every advance on the BSE. A total of 942 stocks rose, while 1,812 ended in the red.

India’s volatility index (VIX), a measure of how choppy traders expect the market to be in the near future, rose 9.09 per cent to close at 17.79. Defensive buying helped Hindustan Unilever be the only stock among the thirty that make up the Sensex to end with gains. It was up 0.43 per cent.

“There may be a rub-off on India if foreign investors trim their holdings in the emerging-market basket. Indian commodity stocks could take a hit if the larger concerns over the Chinese economy persist. However, the overall impact is unlikely to be a large one. The Nifty is likely to be in a range of 8,000-8,500, unless there are significant negative domestic triggers,” said Piyush Garg, chief investment officer, ICICI Securities.

“China has very low linkages to India and that is unlikely to result in a major impact locally… Other global worries also seem limited, as Greece looks ring-fenced. We maintain our March 2016 target of 32,700 for the Sensex,” said Nirav Sheth, head of research (institutional equities), Edelweiss Financial Services. Commodities markets reflected the growing concerns about the broader health of the world’s second-largest economy, with copper prices falling to a six-year low, Shanghai nickel futures sliding by their five per cent daily limit, and Brent crude oil slipping towards $56 a barrel, nearing a three-month-low level.

In India, securities worth Rs 3.70 lakh crore exchanged hands on Wednesday. This was around 25 per cent higher than average volumes over June.

More than 500 China-listed firms announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 — 45 percent of the market or roughly $2.4 trillion worth of stocks — as companies scuttled to sit out the carnage.

The Chinese securities regulator said the Securities Finance Corp had provided 260 billion yuan ($41.8 billion) to 21 brokerages, though that sum was only 40 per cent of the amount of leveraged positions that investors had cut since June 18.