China Stock Market Suffers Biggest One-Day Collapse Since 2007

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The stock market in China suffered the biggest one-day collapse today since February 2007 amid investors ‘concern regarding the country’s economic growth. Investors are speculating that the Chinese government’s intervention to prevent a market sell-off was unsustainable.

The Shanghai Shenzhen CSI 300 Index declined 8.55% to 3,819.09 points. Bloomberg noted that 75 Chinese equities declined for every stock that rebounded.

“Today’s rout in China poured cold water on investor sentiment. This also revealed the market is still too fragile without government support,  said Mari Oshidari, a strategist at Okasan Securities Group.

China implemented extra-ordinary measures to support the stock market

The Chinese government implemented extreme measures to market collapse such as suspending initial public offerings (IPOs) and enlisting  major brokerages to buy shares worth no less than 120 billion yuan or $19.62 billion (15% of total net assets) on exchange traded funds (ETFs).

The Chinese government also allowed companies to suspend trading, prohibited major shareholders from selling their stakes, and provided $480 billion to a state-run financing vehicle to support the stock market.

The China Securities Regulatory Commission said China Securities Finance Corp did not exit the stock market. The Commission emphasized that it would continue its efforts to stabilize the market, investor sentiment and to prevent systemic risk.

The Commission added that the China Securities Finance Corp would increase its stockholdings at appropriate time. It is not ruling out the possibility that the recent short-selling activity was malicious and intends to conduct investigation and would impose severe punishment to offenders.

The International Monetary Fund (IMF) encouraged China to eventually wind down its support measures, according to a person familiar with the situation

Sam Chi Yung, a strategist at Delta Asia Securities commented, “Investors are afraid the Chinese government will withdraw supporting measure from the market.”

Matt Maley, an equity strategist at Miller Tabak & Co., told Bloomberg, “The situation in China is causing concern, particularly for international companies that get a good portion of their sales from overseas.”

China industrial profits drop

The profits of industrial companies declined 0.7% from January to June, according to National Bureau of Statistics in China.  The agency also reported that the profits of state-holding industrial companies dropped 21.2% during the first six months of this year.

Separately, China’s manufacturing in July declined to its lowest level in 15 months. The preliminary Purchasing Managers’ Index from Caixin and Markit Economics dropped to 48.2%.

Source: Bloomberg