Article / 26 September 2016 at 10:05 GMT

Chinese shares post largest one-day decline in two weeks

Saxo Capital Markets China
  • Chinese stocks see biggest plunge in two weeks
  • Late-session selloff sees SHCOMP drop to 2,980
  • Investors remain cautious ahead of National Day

Wave of red: Chinese stocks plunged lower as a late-day selloff 
saw five decliners for every gainer. Photo: iStock

By Jay Luo

Chinese shares posted their biggest decline in two weeks with a late-session plunge that saw about five stocks decline for every one that advanced. The benchmark Shanghai Composite Index dropped 1.76% to 2980.43 and the Nasdaq-style ChiNext Index slumped by 1.56% to 2122.90. All sectors dropped more than 1% except banking shares which fell 0.85%.
According to People's Bank of China data, 375 billion yuan of reverse repurchase agreements expired on Monday but the central bank only offered 120 billion yuan worth of 14-day reverse repurchase agreements and 10 billion yuan worth of 28-day reverse repurchase agreements in its routine money market operation. This means 245 billion yuan was drained today and the seven-day Shibor rose 3.3 basis points to 2.4390%.

Last week, the central bank pumped 810 billion yuan into the market to meet the cash demand before the upcoming National Day holiday and the usual quarter-end liquidity demand.

Meanwhile, investors are cautious before the long holiday. Expectations for more monetary stimulus from major central banks after Brexit have been reduced and China's central bank faces a dilemma: on the one hand, it has to retain an accommodative monetary environment to support supply-side reform and economic growth. 

On the other, however, more and more evidences indicate money has flowed into financial market and is creating big housing market bubbles. This has increased policy uncertainties.

The Shanghai Composite Index broke below its upward trend channel on September 12 and this was followed by a technical rebound that was in turn capped by the middle Bollinger band.

The chart is currently bearish from a technical perspective and the index may test 2,932 (the August 1 low and the 61.8% Fibonacci retracement of the post-Brexit move).
Shanghai Composite Index, Daily

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Source: EastMoney

— Edited by Michael McKenna

Jay Luo is an editor and analyst at Saxo Capital Markets in China


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