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Although the tumbling Shanghai share prices has alarmed Chinese investors, it hasn’t caused wider ripples through the markets.
Indeed, European stocks have hit their highest level since 2007, with Germany’s DAX gaining 0.3% to a new record high.
The FTSE 100 is up 0.4%, or 25 points, at 6575.
Money is also flowing into eurozone government debt, driven by speculation that the European Central Bank will launch a big sovereign bond-buying programme on Thursday.
Stan Shamu of IG argues that Chinese regulators should be applauded:
While this is putting a dent in equities in the near term, the intentions seem good as officials continue to reign in reforms and curb excessive speculation.
Hao Hong, an analyst at BOCOM International, says China’s clampdown on margin lending came as “a nasty surprise” to investors. And that means today’s selloff could continue:
“With less incremental liquidity flow into stocks and dampened sentiment, the market will correct in the near term, and the move can be violent.”
Charts: China's stocks slide
A swathe of Chinese stocks fell by the maximum amount allowed,during today’s rout:
While this chart shows how shares had surged in the last few months, helped by speculative activities such as margin trading:
Chinese stock market hit by clampdown on speculation
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.
The three firms had all broken regulations by allowing customers to roll over margin-trading contracts.
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. inHong Kong, explained to Bloomberg:
end quote from:“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.”
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