The Shanghai Composite plunged 6.5% yesterday with 260 out of 1083 stocks hitting the daily downside limit of 10%. This is the second steepest fall in the last six years following the 7.7% drop on 19 January this year. Commerzbank listed a number of responsable factors, including
- i) China’s sovereign wealth fund reducing its holdings in state-owned banks
- ii) Securities houses tightening margin-finance requirements
- iii) Speculations that regulators are reining in the market rally, including PBoC’s decision to drain liquidity via repo operations with targeted financial institutions
- iv) Concerns over a divergence of funds with a number of IPOs next week
The correction comes amidst signs of overheating in the stock market with the Shanghai Composite still up 43% YTD and up 126% in the past 12 months. There were also reports that the State Council could announce plans to ease restrictions on overseas investments for individuals and companies in coming weeks. Under the plan, individuals could be allowed to make direct overseas investments instead of having to go through approved asset managers under the existing QDII program. The potential move marks another incremental step towards deregulating the capital markets. It also comes as China pushes its companies to venture overseas as it seeks to diversify its reserves. For USD-CNY, it dipped below the 6.20 level briefly yesterday before it closed just above the 6.2000 level, notes Commerzbank.
The material has been provided by InstaForex Company – www.instaforex.com