Key China stock index dips 8.48% in worst 1-day loss in 8 years

 After a brief rally last week following A $3.2 trillion slump, Chinese shares plunged again by 8.48 per cent. It was the worst single-day loss in eight years.

The benchmark Shanghai Composite Index plunged 8.48 <g data-gr-id="35">per cent</g> to close at 3,725.56 points, in the sharpest daily drop since February 27, 2007. The smaller Shenzhen Component Index fell 7.59 per cent to close at 12,493.05 points. Nearly 2,000 shares fell by the 10-per cent daily limit.

The plunge ended a six-day rally following government’s concerted efforts to arrest the freefall that wiped nearly a third off the value of the market since mid-June. “Historically, it takes <g data-gr-id="44">time</g> to restore market confidence after such a long period of sharp decline. The market is expected to linger at the bottom for a while before it can stage a sure rally,” China Southern Asset Management Company Limited said in a research note.

The sharp drop came amid fresh data that showed China’s growth continues to face strong headwinds, state-run Xinhua news agency reported. The National Bureau of Statistics said on Monday that profits at major Chinese industrial firms dropped 0.3 <g data-gr-id="39">per cent</g> year on year in June, down from a 0.6 <g data-gr-id="40">per cent</g> growth posted in May.

The preliminary Caixin China Manufacturing Purchasing Managers’ Index (PMI) released on Friday retreated from 49.4 in June to 48.2 in July, the lowest since last April. 

Monday’s sudden fall was also a result of investors choosing to lock in profits following last week’s rally of around 20 <g data-gr-id="33">per cent</g>, which was a bit “steep,” China Southern Asset Management Company Ltd said.

Market sentiment has become increasingly fragile following the drastic ups and downs in the previous weeks. The market considers 4,000 points <g data-gr-id="32">an</g> “important psychological mark” and risks are believed to escalate as the Shanghai index rises above it.

The recent crash, which drained $3.2 trillion capital out of the market bankrupting millions of investors, prompted the Chinese government to unveil a slew of measures to prop up the market including reducing the number of new shares to avoid a shares glut, a police crackdown on short-selling and a six-month ban on big shareholders selling stocks.

The government has launched a criminal investigation, deploying the police in the stock regulators office. However, it seems that the government orders may not have been carried out by <g data-gr-id="42">every one</g>, the report said.