Investors on the run as China sinks deeper

Shanghai

 China stocks took another plunge yesterday, as the securities regulator warned the market was in the grip of "panic" selling after fresh government moves failed to arrest a rout that has now infected regional markets.

Confidence took a hit as trading halts expanded to cover more than 1,300 companies nearly half of mainland listings  to prevent further sharp declines in their stock prices.

The benchmark Shanghai Composite Index closed down 5.90 per cent, or 219.93 points, to 3,507.19. The Shenzhen Composite Index, which tracks China's second exchange, dropped 2.50pc, or 48.38 points, to 1,884.45.

"There’s really panic out there," Tony Chu, a Hong Kong-based money manager at RS Investment Management Co., told Bloomberg News. "I wouldn’t suggest catching the falling knife."

The latest tumble came despite the government announcing new measures to support the market, including allowing insurance companies to invest more assets in stocks and a programme to buy the shares of smaller companies.

"Investors' panic and irrational sell-off caused a liquidity strain on the stock market," Deng Ge, a spokesman for the China Securities Regulatory Commission (CSRC)  the market watchdog was quoted by state media as saying.

Asian bourses, already under pressure from the protracted Greek debt crisis, also posted sharp declines as contagion from the rout in China spread, with investors running for safe-haven assets such as the yen.

Hong Kong equities plunged 5.84pc to their lowest close since early January, Tokyo dropped 3.14pc and Sydney retreated 2.01pc. US-listed Chinese stocks were also marked down overnight despite gains across all three main indexes on Wall Street.

By the close yesterday, the Shanghai market was down 32pc from its peak on June 12, when it had risen by more than 150pc in 12 months, in a borrowing-fuelled frenzy powered by millions of new retail investors.

Analysts say the resulting deep correction has been mainly triggered by new restrictions on margin trading -- a practice that magnifies both profits and losses -- and accelerated by concern about overvaluations.

China’s two oil giants were among the biggest losers in Shanghai yesterday. PetroChina slumped 9.07pc to 12.33 yuan while Sinopec fell by its 10pc daily limit to 6.72 yuan, despite saying its net profit likely rose by more than 1,000pc in the second quarter from the previous quarter.

Brokerages also fell in Shanghai. China Merchant Securities plunged 9.77pc to 22.07 yuan while Citic Securities lost 10pc to 23.43 yuan.