SHANGHAI: Chinese shares plummeted on Monday, wiping out the year’s gains and leading a slump across Asian equities as Beijing’s latest market intervention failed to restore confidence, with concern mounting about the stalling economy.
Chinese stocks have tumbled since peaking in mid-June and authorities have launched broad interventions to try to restrain the drops, but concerns over stalling growth and doubts about valuations continue to drag.
The surprise devaluation of the yuan on August 11 added to fears the world’s second-largest economy is weaker than thought, sparking a sell-off that has wiped more than $5 trillion off world equity markets.
The benchmark Shanghai Composite Index closed down 8.49 percent, or 297.83 points, at 3,209.91—below its closing level on December 31 last year, wiping out all its 2015 gains.
It was its biggest fall for more than eight years, since February 2007, and it dropped as much as 9.00 percent during trading.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, plunged 7.70 percent, or 156.94 points, to 1,882.46.
“This is a real disaster and it seems nothing can stop it,” Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management, told Bloomberg News.
“If we don’t cut holdings ourselves, the fund faces risk of forced closure. Many newly started private funds suffered that recently. I hope we can survive.”
The share falls on the mainland have sent shockwaves around global bourses, which are now themselves impacting on Chinese markets.
Hong Kong’s main index was down 4.89 percent in late trade. Tokyo’s Nikkei 225 fell 4.61 percent to a six-month low and Taipei recorded its biggest-ever intraday drop, at 7.46 percent.
In Europe, stock markets were hammered in opening trade with London’s benchmark FTSE 100 index down 2.62 percent and Frankfurt’s DAX 30 sinking 3.15 percent.
Oil was trading below the $40 a barrel mark, at its lowest level since 2009.
Monday’s fall took the Shanghai index well below the 3,500 mark, which had been seen as a symbolic moat authorities would seek to protect.
Haitong Securities analyst Zhang Yanbing said the market had gone below the “policy bottom” but still needed to reach the “market bottom”, which was usually lower.
“The market still has room to go down further,” he said.
Chinese shares have been extremely volatile after a huge debt-fuelled rally, which saw the market rise 150 percent in 12 months, collapsed in mid-June.
Beijing then intervened with a rescue package that included funding the China Securities Finance Corp. (CSF) to buy stocks on behalf of the government and barring major shareholders from selling their stakes.
In the latest move at the weekend, China said it will allow its huge state pension fund to invest up to 30 percent of its assets—which totaled 3.5 trillion yuan at the end of 2014, according to the official news agency Xinhua—in stocks.
Speculation is mounting that the government will soon announce another reserve requirement ratio cut, which will free up banks to lend more. It could also cut interest rates again, or provide more direct funding for policy-led lending.
But analysts question whether attempts to prop up the market are fundamentally misguided.
Phillip Securities analyst Chen Xingyu said: “With the global market weak at the moment, it will be more difficult than ever for the market to recover this time.
“The government cannot pile real money into the market every time is falls. For one, it wont be able to stop the crash. And for another, even if steps in, it is usually the speculators who profit from these measures. Then the government would be a big sucker.”
China’s economy, a key driver of global growth, expanded at its weakest pace since 1990 last year and has slowed further this year, growing 7.0 percent in each of the first two quarters.
Beijing is trying to manage a delicate rebalancing to make growth more consumer-driven and sustainable, but also making sure it does not slow so much that jobs growth is severely affected.
The yuan devaluation was widely seen as intended to give Chinese exporters—a key sector of the economy—a boost by making their products cheaper abroad.
Concerns that growth is decelerating in the world’s number-two economy were fuelled on Friday when the preliminary figure for Caixin’s purchasing managers’ index for Aug ust, a key indicator of manufacturing activity, slumped to a 77-month low.
US and European equities tumbled after that data, with the Dow Jones Industrial Average posting its worst single-day session in four years and all the benchmark indices on Wall Street losing over 3 percent.