China’s stock market has suffered its biggest one-day fall in over six years this morning, after regulators clamped down on risky investing practices.
The Shanghai index tumbled by 7.7% to 3,355 points, the biggest one-day fall since June 2008. Several bank shares slumped by 10%, the maximum allowed.
The sharp selloff was triggered by a crackdown on margin trading; where investors borrow money from their stock broker and use it to buy shares. The resulting leverage can give them big returns, but is also extremely risky.
The China Securities Regulatory Commission announced on Friday that three large brokers – Citic Securities, Haitong Securities and Guotai Junan Securities — had been banned from opening new margin trading accounts for three months.
Shares in Citic and Haitong both tumbled by 10% in early trading today.
The Shanghai index had surged in recent months, up around 40% since November, triggering the CSRC to act.
As Hao Hong, a strategist at Bocom International Holdings Co. in Hong Kong, explained to Bloomberg:
“Regulators are concerned that shares have run too hard, too fast”.
“They want a measured increase in the stock market. After all, margin financing is one of the reasons for people to be bullish on brokerage stocks, and these stocks have run particularly hard.”
Source: The Guardian