Chinese stock markets crashed on Friday, June 26th, posting their biggest daily decline in seven years.
He warned his clients from buying the mainland shares in a report released today, claiming that the high (reached by the market June 12) was most likely the top of the bull market. “In fact, we think the balance of probabilities is that the top for the cycle of Shanghai, Shenzhen and Chinext has now taken place”.
Many people thought China’s stock market would be a one-way street straight up to trader heaven with free money for everyone.
Capital Economics said it expected gold demand from China and India to remain strong this year, rising by 8 percent and 11 percent year-on-year respectively.
For the SSEC, it was the worst one-day loss since January 19. The index slid 6.4 per cent this week, adding to a 13 per cent plunge last week that was the steepest since the global financial crisis.
The Shenzhen Composite is also trading down 7.87 per cent to 2,502.96. Chinese worries dented sentiment across Asia, particularly in Hong Kong, where the Hang Seng index ended 1.8 percent lower at 26,663.87.
With small in the way of economic data or corporate announcements to spark the plunge on Friday, some investors pointed to signs of a pullback by leveraged traders.
“The correction is basically margin selling”, said Francis Lun, the chief executive at Geo Securities in Hong Kong. This year, it has been up as much as 60%, as local investors-cheered by a series of stimulus measures introduced by China’s central bank last November-have borrowed a flood of cash from their brokerages to invest in the stock market.
It’s another freakout Friday for China stocks.
Gold fell $1.10 to $1,171.80 an ounce, silver fell four cents to $15.81 an ounce and copper was flat at $2.62 a pound.
A clampdown on margin trading, as well as suggestions that monetary policy won’t be eased further, have been blamed for the recent fall, which comes after an extended surge for Chinese stocks.
“The Shanghai Composite may fall to the 4,000 level in the next five to eight weeks as the government tightens margin lending, new share sales sap liquidity and concern grows the central bank will not cut lenders’ reserve-requirement ratios”, said Hou Yingmin, an analyst at AJ Securities in Shanghai.
According to Morgan Stanley, the raised level of equity supply, high valuations, weak earnings growth, and the increase in margin debt could lead to the Shanghai Composite falling 30% through mid-2016.