Slide in bank stocks a 'normal correction': analyst
Despite reassuring comments from China's securities watchdog over the weekend and continuing efforts to curb turbulence, mainland stock markets fell on Monday, weighed down by losses in the banking sector.
In a further effort to rein in market volatility, the Shanghai Stock Exchange (SSE) announced after the market closed on Monday that it would tighten limits on the positions of SSE 50 exchange traded fund (ETF) options.
On Monday, the SSE, the Shenzhen Stock Exchange and the China Financial Futures Exchange (CFFEX) solicited public opinion on the introduction of a "circuit breaker" mechanism, which would set two thresholds of 5 percent and 7 percent based on the CSI 300 Index. Once the index hits the 5 percent threshold, market trading would be suspended for 30 minutes.
The China Securities Regulatory Commission announced late on Monday a set of rules to encourage investors to hold onto their stocks for longer. Under the new rules, investors will not have to pay income tax on dividends from stocks that they have held for more than one year.
The Shanghai Composite Index fell by 2.52 percent or 79.75 points to close at 3,080.42 points on Monday, while the Shenzhen Component Index dropped by 0.63 percent or 63.04 points to 9,991.76 points.
The CSI 300 Index of the biggest companies traded in Shanghai and Shenzhen fell by 3.43 percent or 115.34 points to end at 3,250.49 points, while ChiNext, the country's NASDAQ-style board for high-tech and emerging start-ups, rose 2.07 percent or 38.49 points to 1,893.52 points.
The benchmark Shanghai index wavered between gains and losses in the morning session before falling back in afternoon trading, with the fall led by banks and other financial stocks.
The banking sector was the worst performer on Monday, with Bank of Communications Co, China Minsheng Banking Corp, China Construction Bank Corp and Industrial and Commercial Bank of China plunging by 10.06 percent, 9.27 percent, 8.78 percent and 8.69 percent, respectively.
"Banks greatly outperformed the markets last week, and today's losses are just a normal correction for the sector," a Shanghai-based analyst surnamed Li told the Global Times on Monday.
"Investor sentiment remains relatively weak despite the latest efforts by the authorities to rein in volatility and soothe concerns," he noted.
Starting from Monday, opening more than 10 contracts on a single index-futures product on the CSI 300, SSE 50 and CSI 500 indexes will be defined as abnormal trading and will be prohibited, the CFFEX announced after the market closed on Wednesday.
While the CFFEX said the limit would only be applied to futures trading for non-hedging purposes, it is still uncertain what kind of standards will be used to distinguish hedging and non-hedging.
It was the CFFEX's third tightening measure in nine days, and came alongside an increase in margin requirements for futures contracts and a sharp rise in fees for settling positions opened on the same day.
As a result of the new rules, the trading volume of index futures shrank significantly on Monday, with turnover of the September contract of CSI 300 index futures falling by more than 90 percent to just 38,000 lots.
Meanwhile, major futures contracts recorded considerable gains. The September contract for CSI 300 index futures rose by 2.22 percent on Monday, while that for the CSI 500 surged 7.64 percent.
According to Jiang Mingde, chief economist with Hengtai Futures, the tightening measures may look strict, but from the perspective of the whole market, curbing excessive speculation is vital for the long-term development of the index futures market.
Regulators have said that speculative index futures trading is partly to blame for the recent stock market plunge, which saw the Shanghai Composite Index fall by about 40 percent from June's peak.
Against such a backdrop, Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing Ltd, said at a conference in Singapore on Monday that it may not be the right time to talk too much about mutual market access, indicating that the plan for a program to connect the Hong Kong and Shenzhen stock markets may be delayed, media reports said.
Zhou Xiaochuan, governor of the People's Bank of China, the central bank, said Saturday at the G20 meeting in Turkey that the correction in China's stock market is almost over and a more stable market can be expected.
US index provider MSCI said the recent A-share market turbulence would not affect the decision on whether to include A shares in its Emerging Markets Index, which may happen sooner than expected, Henry Fernandez, CEO of MSCI Inc, was quoted as saying by the Shanghai Securities News on Monday.
According to MSCI, including China's A shares in the MSCI Emerging Markets Index could lead to $400 billion of funds being injected into mainland stock markets by global asset managers, pension funds and insurers.
