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China stocks swing wildly in chaotic end to worst week in years

Bloomberg
Bloomberg • 2 min read
China stocks swing wildly in chaotic end to worst week in years
The CSI 300 Index plunged more than 3% at one point before closing down 1.2%. The Shanghai Composite gauge similarly pared its loss, capping its worst week since 2018. Photo: Bloomberg
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A sense of panic gripped Chinese stock investors on Friday afternoon as key benchmarks tumbled sharply, and then quickly pared their losses, leaving traders wondering what’s next in store for the ailing market.

The CSI 300 Index plunged more than 3% at one point before closing down 1.2%. The Shanghai Composite gauge similarly pared its loss, capping its worst week since 2018. 

The volatile moves underscore how investor confidence has been shattered as risks keep stacking up. In addition to a weak economic outlook, concerns over forced stock sales from highly-leveraged stakeholders, margin calls, and technical selloff triggers for snowball derivatives are all combining to unnerve traders. 

Geopolitical risks have also resurfaced ahead of the US presidential election later this year. A renewed tumble in WuXi AppTec Co. Friday afternoon triggered the initial downfall. The stock has been heavily sold off recently following a proposed US legislation that would ban the Chinese medical technology company and its units from government contracts.  

“I don’t recall there being this much panic in the market since 2015 — though the selloff isn’t as hard as it was back then, sentiment is just as depressed and in distress,” Li Xuetong, fund manager at Shenzhen Enjoy Investment Management Co. “Anecdotally, I am also hearing increased number of margin calls. There shouldn’t be that much downward room here, and usually rebounds at this stage are also strong.” 

Chinese authorities have sought to put a floor under the rout, ramping up monetary stimulus and vowing to keep up spending this year despite a property market slump weighing on key government revenue sources.

See also: China property crash is battering a niche pocket of ESG finance

Those pledges and measures, however, have proven insufficient to rescue what’s spiralled into a crisis of confidence. Burned repeatedly over the past few years, investors now have little faith in the market’s prospects.

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