Investors monitor share prices at a securities brokerage in Nantong, Jiangsu province, on Tuesday. The Shanghai Composite Index lost 3.47 percent to close at 4,887.43 points, with turnover falling to 895.4 billion yuan ($144.4 billion) from over 1 trillion yuan on Monday. (Photo/China Daily)
The benchmark Shanghai Composite Index suffered its biggest two-day loss this month on Tuesday as investors rushed to offload shares amid heavy selling pressure.
According to analysts, a slew of factors, including rising liquidity fears, have triggered the nearly 5.5 percent, or 287-point fall in the benchmark during the past two days.
Doubts about the sustainability of the rally arose after the benchmark surged beyond the psychological barrier of 5,000 points earlier this month.
Most investors decided to rejig their portfolios as they found more negative factors than positive developments, which in turn led to a heavy bout of selling.
Though the People's Bank of China, the central bank, suspended its daily open market operations to assuage liquidity fears and to maintain a neutral stance on monetary policy, it did little to cool the market sentiment. Jittery investors believed that the central bank move has snuffed out any hopes of further monetary easing or market-friendly measures.
What's more, the magnitude of the crackdown on rampant speculation through margin trading was beginning to sink in, they said. Measures taken by some major brokerages to restrict their clients' margin trading accounts reflected the seriousness of the issue.
Some corporate investors took the lead in offloading their stock holdings on Monday to lock in profits, analysts said. The sell-off intensified on Tuesday as more investors followed suit.
The Shanghai Composite Index lost 3.47 percent on Tuesday to close at 4,887.43 points. Turnover shrank to 895.4 billion yuan ($144.4 billion) from more than 1 trillion yuan on Monday.
ChiNext, the Nasdaq-style board for technology startups on the Shenzhen bourse, lost 2.85 percent to 3,590.67 on Tuesday. The index has retreated 8.4 percent this week as some analysts said valuations on the startups board have been too frothy and many senior executives are cashing out their share holdings.
Important stakeholders of the listed companies had sold 80.6 billion yuan worth of shares by Monday, according to their filings to the bourses. The size of the cash-out in May and June is likely to surpass that of all of 2014, the China Business News said.
Analysts said the upcoming listings of 25 companies this week, as well as the Ministry of Finance's latest announcement that it approved another 1 trillion yuan for local government debt swap program may put more pressure on short-term liquidity.
"The market is under a temporary correction. Investors are taking profits as small chips are pushed to historical highs. The tightening regulation for margin financing is also interpreted as a bearish signal at this time," a research note issued by Soochow Securities Co Ltd based in Suzhou, Jiangsu province, said on Tuesday.
The securities regulator, the China Securities Regulatory Commission, published draft rules on Friday that would for the first time limit the size of margin trading and short selling by law, capping the businesses at four times a brokerage's net capital.
Adding to investor concerns, an upcoming wave of initial public offerings is set to drain more capital this week. A total of 25 companies are expected to lock up 6.7 trillion yuan of subscription capital, according to Bloomberg analysts' consensus.
Bank of Jiangsu Co Ltd plans to launch an IPO in Shanghai. Analysts expected it could raise more than 40 billion yuan－even bigger than this week's 30 billion yuan mega IPO by Guotai Junan Securities Co.
"Investors are cautious now, yet not pessimistic," said Eric Wu, a private equity analyst based in Shanghai.
"The bull market needs a break, although it takes time to decide what kind of break will come. But I do not think the ceiling has been reached. It seems the regulators want a slow bull, rather than a bear," he said.
The Shanghai gauge has rallied more than 150 percent in the past 12 months, the most among global benchmark indexes.
