Beijing: China's share market nose-dived again Monday plummeting 8.48 percent to an eight-year low as investors unnerved by the weak economic data on the world's second largest economy dumped their shares to lock in profit despite frantic government efforts to arrest the slide.
After a brief rally last week following the USD 3.2 trillion slump, Chinese shares plunged again by 8.48 percent. It was the worst single-day loss in eight years.
The benchmark Shanghai Composite Index plunged 8.48 percent to close at 3,725.56 points, in the sharpest daily drop since February 27, 2007.
The smaller Shenzhen Component Index fell 7.59 percent to close at 12,493.05 points. Nearly 2,000 shares fell by the 10-percent daily limit.
The plunge ended a six-day rally following government's concerted efforts to arrest the freefall that wiped nearly a third off the value of the market since mid-June.
"Historically, it takes time to restore market confidence after such a long period of sharp decline. The market is expected to linger at the bottom for a while before it can stage a sure rally," China Southern Asset Management Company Limited said in a research note.
The sharp drop came amid fresh data that showed China's growth continues to face strong headwinds, state-run Xinhua news agency reported.
The National Bureau of Statistics said today that profits at major Chinese industrial firms dropped 0.3 percent year on year in June, down from a 0.6 percent growth posted in May.
The preliminary Caixin China Manufacturing Purchasing Managers' Index (PMI) released on Friday retreated from 49.4 in June to 48.2 in July, the lowest since last April.
Today's sudden fall was also a result of investors choosing to lock in profits following last week's rally of around 20 percent, which was a bit "steep," China Southern Asset Management Company Limited said.
Market sentiment has become increasingly fragile following the drastic ups and downs in the previous weeks.
The market considers 4,000 points an "important psychological mark" and risks are believed to escalate as the Shanghai index rises above it.
The recent crash which drained USD 3.2 trillion capital out of the market bankrupting millions of investors prompting the Chinese government to unveil a slew of measures to prop up the market, including reducing the number of new shares to avoid a shares glut, a police crackdown on short-selling and a six-month ban on big shareholders selling stocks.
The government has launched a criminal investigation deploying in police stock regulators office.
However, it seems the government orders may not have been carried out by everyone, the report said.
Major shareholders in five listed companies including Shandong Yanggu Huatai Chemical Company Limited are under investigation for allegedly selling company shares, the China Securities Regulatory Commission said over the weekend.
While some economists hailed the government's move to stem risks to the broader economy, some others suggest more market-oriented measures need to be taken as they believe that government intervention is only delaying the inevitable.
Before the market took a downturn on June 12, the Shanghai composite had risen by 152 percent since July 2014 and nearly 60 percent since the beginning of the year, galloping far ahead of economic fundamentals during the period.
Regarding the impact of the recent stock market rout, global rating agency Moody's said in a latest report that the turbulence will not have a major spillover effect on China's real economy.
"The direct impact from heightened volatility in China's equity market on financial sector output growth will be limited, while the indirect effects of market uncertainty on consumer spending, employment and corporate investments will be similarly muted," said Michael Taylor, a Moody's managing director and chief credit officer for Asia Pacific.
Echoing Moody's, rating agency Fitch also reckons the market volatility does not pose a systemic risk to the nation's real economy or financial system, with Chinese banks having relatively little direct exposure to stock.
