Chinese Stocks Plummet: Shanghai Tumbles Most In 17 Months As Bond Rout Spreads

The euphoria from the year-end melt up in Europe and the US failed to inspire Chinese traders, and overnight China markets suffered sharp losses, with the Shanghai Composite plunging 2.3%, its biggest one day drop since June 2016, over growing fears that the local bond rout is getting out of control. Both the tech-heavy Chinext and the blue-chip CSI 300 Index dropped over 3%, as the sharp selloff accelerated in the last hour, as Beijing’s “national team” plunge protection buyers failing to make an appearance. There were sixteen decliners for every one advancing share.

In addition to tech, consumer non-cyclical and health-care sectors, the hardest hit names were banks such as ICBC, Ping An Insurance, and Kweichow Moutai. Over in Hong Kong, the Hang Seng Index slid 1 percent from a decade-high, one day after closing above 30,000.

Confirming our report from last week, that traders were stunned by an official warning from Beijing that some stocks – in this case, Kweichow Moutai, one of the most popular stocks among investors  – had risen “too far, too fast”, Ken Peng, strategist at Citi private bank, told CNBC Thursday that over the weekend he had heard views about particular Chinese stocks having moved too fast. He also said that Thursday’s downward move was impacted by “relative tight liquidity conditions in financial markets overall, because of a more stringent liquidity policy by the central bank.”

“The decline in Moutai has triggered selloffs in some of this year’s best-performing stocks,” said Zhengyang Shen, a Shanghai-based analyst at Northeast Securities. “When those giant stocks fall, retail investors will follow to sell their holdings. The ChiNext stocks do not have much support from the national team, so they fell even more,” he said, referring to state-backed funds.

As Bloomberg adds, today’s tumble was especially jarring given this year’s relative placidity in the stock market – the world’s second-largest. Volatility on the Shanghai Composite Index fell to the lowest level in decades earlier this month amid signs the government was curbing speculation in the wake of 2015’s $5 trillion rout. For Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong, it’s too soon to talk about panic selling.