The Shanghai Composite clocked a decline of 4 percent at the opening bell, while the Shenzhen Composite tumbled 5 percent.
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Markets finally began stabilising in the second week of July after a barrage of official support measures that were rewarded with a rebound of more than 15 per cent, prior to Monday’s slide.
The China Securities and Regulatory Commmission (CSRC) said it is investigating share dumping incidents on Monday, when Chinese markets suffered their worst single-day plunge in more than 8 years.
Asian stocks had already started the week on a dour note, rattled by a last week’s report on Chinese manufacturing that sparked a sell-off in gold as well as copper and other commodities. Investors opened 1.64 million accounts in the week ended May 29.
“They were cheerleaders for the bull market, but actually the bull market was just a bubble”.
European markets are mixed in early trading. No. 2 was Ue Furniture Co., a maker of high-tech office chairs, up 240 percent.
Faced with global declines in stock prices, investors moved into traditional safe havens.
China’s top securities regulator warned that the authorities would deal severely with anyone engaged in the “malicious shorting of stocks“, in an attempt to stave off a fresh rout. Regulators have eased access for private companies but the exchanges still are dominated by state industry. Share prices more than doubled in the six months to May, before crashing in June by more than a third.
Early efforts failed to change sentiment, until the government banned shareholders with more than five percent stakes from selling stock and launched a police crackdown on short-selling. The government mandated its main pension fund for civil servants to invest up to 30 percent of its assets in stocks, or up to 900 billion yuan ($145 billion). The government ordered brokerages to buy local stock worth about $20 billion, and extracted a promise that they would not be sold until the Shanghai Composite hit 4,500.
Critics say the state’s hand in the country’s financial market could be a major impediment to the inclusion of the yuan in the IMF’s basket of currencies with Special Drawing Rights.
Although Chinese equity markets are relatively closed to outside investors, there are worries about the health of the underlying economy, which is a key driver of global growth. Beginning in 2002, Beijing allowed a handful of foreign fund managers to buy Chinese shares under rules that limit short-term trading.
“Mainland Chinese stocks traded sideways during the morning session with profit taking from investors, after Wednesday’s rally”, said Gerry Alfonso, a director of Shenwan Hongyuan Securities.
Shares in China experienced their biggest fall in over 8 years yesterday, losing 8.5%.
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“So we have the foundation and necessary means to keep the healthy development of capital market including the stock market”.
