Markets fall on credit crunch, lackluster data

The domestic capital market showed even greater impatience to the recent lack of good news as the A-share index tumbled on Thursday to its lowest level since December 2012.

Analysts attributed the fall to investor concern about the economy's near-term state after the money-market rate climbed to a record high and Chinese manufacturing appeared to be set to worsen in June.

Investor expectation is now growing on the central government to launch new market-oriented reform initiatives, financial market specialists said.

The Shanghai Composite Index plunged 2.77 percent to 2,084.02 points by the close on Thursday, its lowest finish since Dec 13.

The SCI has dropped 9.4 percent this month and 14 percent from this year's peak on Feb 6.

The Shenzhen Component Index fell 3.25 percent to 8,147.48 points and the Hang Seng China Enterprises Index dropped 3.33 percent in Hong Kong.

Under the influence of China's stock market, Japan's Nikkei index also closed down 1.74 percent to 13,014.58 points.

China analysts suggested three main reasons for Thursday's sharp market fall: the rise in interbank borrowing rates to a record high on Thursday, the fall in the HSBC Purchasing Managers' Index, a gauge of manufacturing activity, to a nine-month low in June, and fears that Chinese securities market regulators may soon lift the temporary freeze on initial public offerings.

Banking stocks were worst hit, dropping 3.01 percent led by Ping An Bank Co Ltd, which dropped 6.21 percent, and Shanghai Pudong Development Bank Co Ltd, which fell 5.29 percent.

Zhou Xu, head of Nanjing Securities Co's strategy department, said the financial stocks were hurt especially because the seven-day repurchase rate, a measure of interbank funding availability, jumped to the highest level, 10.77 percent, since 2003, according to figures released by the National Interbank Funding Center.

"China's stocks can't take a turn for the better because of the increase in the money-market rate, especially the repurchase rate," said Zhou.

"The repurchase rate increase to 10.77 percent, almost double the same period last year, illustrates the nervousness over a lack of money in the market."

Various rumors have been swirling around the market to explain the sudden drain in credit, but none has been officially verified.

Zhou said the current signs suggest the People's Bank of China is unwilling to intervene in the market, adding that as a result domestic stocks are unlikely to see any significant recovery "at least for a while".

The flash HSBC Purchasing Managers' Index fell to 48.3 in June from 49.2 in May.

"The below-50 mark reflects a lingering slowdown across Chinese industry, especially in medium-sized and small enterprises, led by a gloomy export outlook," said Yuan Jun, an analyst at Ai Jian Securities Co Ltd.

"It is a cause of deep concern among investors in the Chinese stock markets, and those in the Asia-Pacific region as well."

Yuan suggested any rebound in the market index would be unlikely before October, because it would require time for the government to reshape its policies and for the policies to begin yielding their expected results.