SHANGHAI, Nov 27 (Reuters) – Chinese shares sank more than 5 percent on Friday in their biggest drop since this summer’s rout after Reuters reported the stock regulator had widened its probe on brokerages to include the country’s fourth-biggest securities firm.
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The benchmark Shanghai Composite Index slumped 5.5 percent, the biggest daily drop since August 25, to close at 3,436 points.
Citic Securities, China’s largest brokerage firm, said Thursday it is being probed for alleged “rule violations”, while several of its directors are already the subject of separate investigations.
Authorities have detained securities executives, an investment fund manager, government employees and a reporter for a business magazine following the collapse in prices that began in early June.
China’s regulators have stepped up scrutiny of the securities industry recently, extending a crackdown after shares fell more than 40% from peak to trough this summer.
China’s biggest brokerage CITIC securities and smaller rival Guosen Securities are under investigation by regulators.
The move was widely seen as an endorsement by Chinese regulatory authorities of a stock market rebound off of what was widely panned as the start of a new global recession.
Stocks are opening mostly lower, led by declines in energy stocks as the price of oil turns lower.
But the turbulence failed to spread beyond Asia, with European only drifting down and USA indices holding steady, unlike last August when a panic-driven sell-off in China sparked volatility in markets across the world.
And on Friday another giant, Guosen Securities, said it was being probed, while second-ranked Haitong Securities halted trading of its shares in Shanghai and Hong Kong.
CITIC Securities, China’s largest brokerage, was at the center of the scandal storm, with at least seven of its senior executives, including President Cheng Boming, being investigated for reportedly using inside information of the government market rescue plan to trade to the firm’s advantage. Citic and Guosen made their announcements to the stock exchange on Thursday, while Haitong announced late Friday. Australia’s S&P/ASX 200 fell 0.2% and South Korea’s Kospi fell 0.1%.
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USA stock futures are mixed into Friday’s open with a freefall in Chinese stocks offset by gains in the technology and retail sector as Wall Street anticipates robust Black Friday consumer spending. “Core household spending dipped by 0.4% month on month in October following a 1.8% month-on-month decline in September”.
