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Toh Han Shih

The Shanghai, Shenzhen and Hong Kong stock markets suffered sharp corrections on Thursday, amid tougher measures by mainland and Hong Kong regulators and tighter margin lending.
The Shanghai Composite Index plunged 6.5 per cent to 4,620.27 points while the Shenzhen Component Index fell 6.19 per cent to 16,963.52 points. On January 19, the Shanghai Composite Index crashed 7.7 per cent in the biggest fall in more than six years.
The Hang Seng Index closed down 2.23 per cent or 626.9 points to 27,454.31 points, while the Hang Seng H-share Index closed down 3.53 per cent or 518.88 points to 14,183 points.
The total value of stocks traded in Shanghai and Shenzhen reached a new record of 2.42 trillion yuan, breaking Tuesday’s record of 2.16 trillion yuan.
The turnover of the Hong Kong stock market on Thursday was HK$208.62 billion
The website of state news agency Xinhua attributed the sharp correction partly to the recently toughened regulation of the capital markets by the China Securities Regulatory Commission (CSRC) and China Banking Regulatory Commission (CBRC).
On May 22, the CSRC’s website announced a raft of penalties for illegal stock market activities. On May 26, CSRC chairman Xiao Gang said CSRC officials must observe central government’s “three strict and three honest” campaign to promote upright behaviour among officials. The CBRC conducted its “three strict and three honest” campaign for CBRC officials on May 19.
Xinhua also cited information from the Hong Kong Stock Exchange that China Central Huijin Investment, a Chinese state-owned investment firm, had sold 1.63 billion yuan of Industrial and Commercial Bank of China A shares and 1.91 billion yuan of China Construction Bank A shares.
On Thursday, the Securities and Futures Commission (SFC) announced it was formally investigating Hanergy Thin Film Power Group, whose Hong Kong share price plunged 47 per cent on May 20.
Gerry Alfonso, a director of Shenwan Hongyuan Securities, noted a “very significant correction” in the mainland market with virtually every major sector down by more than 4 per cent.
“The correction seems to be driven by investors selling to have funds for the next wave of IPOs as well as margin lending tightening,” Alfonso said.
“Brokers are becoming much more restrictive and cautious in margin lending. It is logical that after the enormous growth in this business, brokerage houses are starting to become more cautious. The individual brokers are becoming, by their own decision, more strict.”
Margin lending in the mainland has soared to over 2 trillion yuan from 1.7 trillion yuan in April and 400 million yuan in April last year.
In a domino effect, when some brokers announced they were tightening their margin lending, it started a chain reaction that caused many more brokers to also restrict their margin lending, Alfonso said.
The mainland share prices of many brokerages fell close to the 10 per cent limit on Thursday, Alfonso pointed out.
 “There are reports in the media that the regulators are examining the investments of banks in the equity market,” he said. “The authorities have not confirmed this point and it could be market speculation.”


Shanghai and Shenzhen shares both tumble more than 6pc

The trading floor of the stock exchange in Hong Kong, where shares slipped on Thursday. Photo: Dickson Lee

Business

Markets

Update | Shanghai and Shenzhen shares both tumble more than 6pc