On Friday, the Shanghai Composite index slumped 199.25 points or 5.48 percent to 3436.30, its largest single-day percentage loss since August 18.
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Citic Securities reportedly said that the China Securities Regulatory Commission on Thursday said that the company will be investigated for regulatory violations involving supervision and administration of securities firms.
The sharp drop in Chinese stocks highlights the volatility of the country’s markets and comes ahead of an expected decision by the International Monetary Fund next Monday on whether to include the yuan in its global reserve basket.
Just when it looked as if a relative calm was returning to Chinese markets, stocks nose-dived again on Friday, with the main Shanghai share index losing 5.5 per cent.
France’s CAC 40 slipped 0.5 percent to 4,921.22 and Germany’s DAX edged down 0.1 percent to 11,309.69. The announcements by CITIC and Guosen on Thursday were the first that brokerages themselves were being investigated.
Further souring market sentiment was data released on Friday that profits earned by Chinese industrial companies fell 4.6 per cent in October, declining for the fifth consecutive month.
In August, four senior executives at CITIC Securities confessed to insider trading during an investigation into the market crash, according to Xinhua.
Financial shares led the decline as 18 of China’s 23 listed brokerages plunged by 10 percent, dogged by fresh crackdown on irregularities in the industry.
Authorities are also testing a bull-market rebound by lifting a freeze on initial public offerings and scrapping a rule requiring brokerages to hold net-long positions.
During the selloff, it appeared investors were cashing out of current holdings to invest in new IPOs that were going to be offered next week.
The market’s swift fall signals officials’ efforts to snuff out trading practices they deem suspicious or volatile could be backfiring, as investors struggling to predict Beijing’s next move, and who might be affected, have opted to sell their shares. Another rival firm, Guosen securities also under investigations. The Nikkei 225 Stock Average slid 0.3 percent, falling from a three-month high.
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“After the stock market rout, regulators have a new understanding about leverage”, Chen Xingyu, a Shanghai-based analyst at Phillip Securities Research, said by phone.
