Stocks yesterday tumbled 342.4 points, or 7.19 percent, to their lowest level in nearly six months, turning the market sentiment as chilly as the weather.
The benchmark Shanghai Composite Index closed at 4419.29, the lowest since August 2. Losers outnumbered gainers by 813 to 44. The main indicator has lost a total of 14.7 percent in the last six trading days, wiping out a combined 4,567.3 billion yuan ($634 billion) in market capitalization.
The Shenzhen Component Index plummeted 6.45 percent to close at 16177.83. The turnover on the two bourses fell 16 percent from last Friday to 166.38 billion yuan ($23.1 billion).
Other Asian markets also fell, though on a smaller scale. In Hong Kong, the Hang Seng Index closed 4.25 percent lower at 24053.61. In Tokyo, the Nikkei 225 Stock Average declined 3.97 percent to 13087.91. In Seoul, the Kospi index fell 3.9 percent. Australia was closed for a holiday.
The Asian losses extended to Europe, where shares were down around 2 percent at midday yesterday.
Britain's FTSE 100 was down 2 percent, Germany's DAX down 1.6 percent and France's CAC down 2.3 percent.
But on Wall Street, the Dow Jones Industrial Average gained 58 points or 0.48 percent, in early trading on expectations of more interest rate cuts.
Yesterday's decline in Shanghai was led by financial and other large cap stocks.
The two leading insurers, China Life and Ping An of China, plummeted to daily limits. China's largest stock broker Citic Securities dived 10 percent, and PetroChina slid 8.11 percent to close at 24.02 yuan ($3.3), only half of its A share opening price when it debuted on the Shanghai Stock Exchange on Nov 5.
Investors' intensifying fears of a US consumption slowdown and a decrease in China's domestic demand because of inflation dragged down the market, analysts said.
"After having digested the impact of the Fed's latest interest rate cut, we don't believe that it alone was sufficient to revive the US economy," said Wu Feng, an analyst at TX Investment Consulting Co Ltd.
Meanwhile, "the rate cut has shown that the Fed's fear of recession is getting stronger," said Wang Qing, an economist at Morgan Stanley Asia Limited.
"As China becomes more open and integrated with the global economy, it becomes more vulnerable to external shocks," said Sun Mingchun, an economist at Lehman Brothers.
In addition, "weaker growth in corporate earnings would make high price-to-earnings (P/E) ratios of Chinese stocks harder to justify, after reaching unsustainable levels in the second half of 2007," Sun said.
"This could undermine investor confidence in the equity markets and a prolonged market correction could bring corporate earnings even lower given that some listed companies also invest in the stock markets. A vicious cycle could result," Sun added.
Chen Li, chief analyst at Shenyin Wanguo Securities said "the market is expected to continue to be volatile until March, when the release of annual reports from US financial institutions is complete and the Chinese government announces its financial plan in the two sessions (the National People's Congress and the Chinese People's Political Consultative Conference annual plenary sessions)".
Jiang Jikang, head of marketing at ABN AMRO Bank China, said the Hong Kong stock market is showing "bearish" signs and "investors are fearing a decline in corporate profits".
Jing Ulrich, head of JPMorgan China research, said China will benefit from an increase in trade with developing countries and Europe, and decrease the dependence on US imports.
Source: China Daily
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