China’s Shanghai Composite Index plunged more than 6% in its biggest drop in three weeks, amid
fears that the recent change in exchange rate policy may accelerate flows of capital out of China.
The Shanghai Composite Index fell 6.2% to 3,748.16, its largest fall since an 8.5% dive on 27 July that was the biggest slide in eight years. .
The plunge came despite Beijing taking measures to support the index following a year-long boom and the steep drop which started in June.
To halt the fall, the government imposed a ban on major shareholders from selling any of their shares. The stability proved short-lived, however, as sell-offs restarted, rattling other financial markets.
Chinese stocks were also dented by rumours that the expected reform of state-owned industry might be less ambitious than investors want, said Guo Yanhong, a market strategist for Founder Securities. the disappointment was compounded by concerns that last week’s change in exchange rate policy may actually accelerate capital flows out of China.
“The mentality of the investors is still fragile,” said Guo. “They won’t hesitate to sell their holdings and get out of the market fast whenever they expect a big fall.”
The weak Shanghai stock market underlines persistent worries about China’s economic growth.
China’s surprise move last week to devalue the yuan is expected to aid Chinese exports and help make the Chinese currency more responsive to market forecasts. But it also renewed questions about the outlook of the world’s second-largest economy. The prices of oil, metal and other commodities fell as global demand was expected to be weak.
Analysts expect a further slide in the yuan, which prompted investors to sell Chinese assets, including stocks, said Angus Nicholson, market analyst at IG.
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