Chinese shares closed down 7.70 percent on Monday, the biggest fall in more than six years, after regulators cracked down on margin trading that has fuelled a market rally.
The benchmark Shanghai Composite Index tumbled 260.15 points — the biggest one-day decline since June 2008 — to 3,116.35 on turnover of 409.9 billion yuan ($65.9 billion). It was down as much as 8.33 percent in intra-day trading.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, dropped 3.39 percent, or 50.10 points, to 1,428.37 on turnover of 276.2 billion yuan.
The losses filtered through to Hong Kong, which sank 1.51 percent, despite a strong lead from Wall Street and a broad uptick across Asian markets.
The China Securities Regulatory Commission said late Friday it had suspended three brokerages from opening new margin trading customer accounts for three months after an inspection found rule violations.
Chinese stocks have been surging in recent weeks, triggered by an interest rate cut in November and driven by ample liquidity and margin trading — investors using borrowed funds to trade on the markets with only a small portion of the money put down as deposit.
The three named brokerages — Citic Securities, Haitong Securities and Guotai Junan Securities — are among the country’s biggest. They were found to have renewed expired margin trading and securities lending contracts, in violation of rules.
The regulator gave lesser penalties to nine other brokerages for similar practices, including allowing unqualified customers to trade on margin.
– ‘Punch to the market’ –
“The CSRC’s punishment of the three brokerages for rule violations for margin trading business last Friday was a punch to the market,” BOC International analyst Shen Jun told AFP.
The regulator might also want the market to ease back following last year’s surge in Shanghai, he said.
Expectations of further monetary easing following the interest rate cut have boosted stock market sentiment. The Shanghai index rose 52.87 percent in 2014 and had gained more than four percent for the year-to-date by Friday.
Analysts said the impact from the regulatory move could impact the market for the rest of the week, but were unsure if the “bull market” was finished.
Investors are also awaiting Tuesday’s release of economic growth figures for 2014.
“At least the first round of rally is over,” Zheshang Securities analyst Zhang Yanbing told AFP. “The regulator doesn’t want a surge in the market, it hopes to see healthy and steady development.”
In Shanghai ICBC bank fell to 4.64 yuan, Ping An Insurance Group ended at 70.46 yuan and Citic Securities finished at 29.62 yuan — all three were down by their 10 percent daily limit.
Among other financials Huatai Securities lost 9.99 percent to 23.15 yuan and Avic Capital dived 8.27 percent to 17.53 yuan.
In Hong Kong the benchmark Hang Seng Index fell 365.03 points to end at 23,738.49 on turnover of HK$127.89 billion (US$16.50 billion).
The news out of China overshadowed gains on Wall Street, which capped a five-day losing streak, and came on the back of a pick-up in the price of oil on Friday.
Bank of China slumped 5.86 percent to HK$4.18, HSBC fell 0.36 percent to HK$69.95 and CCB bank lost 3.76 percent to HK$6.14 while China Life Insurance plunged 6.77 percent to HK$29.60.