Chinese stocks plunge after market returns from holiday

A
man covers his face as he reads information displayed on an
electronic screen at a brokerage house in Shanghai May 17,
2010.
REUTERS

• Chinese stocks plunge, with China A50 index losing more
  than 4.8% in trading on Monday.
• The falls follow a week’s holiday for Chinese markets,
  meaning investors had an entire five days of news and data to
  digest in just one session, including an escalation of the
  trade war between the country and the USA.
• It also followed news over the weekend that People’s
  Bank of China will cut the required reserve ratio for
  Chinese banks by 1%.
• 
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Chinese stocks took a hammering on Monday as traders returned to
work after a week away from action following a long holiday in
the world’s second largest economy. 

Losses on major indices in mainland China were as high as 4.8% in
a major market rout, with the China A50, which includes major
companies from both the Shenzhen and Shanghai, the biggest
faller. The Shanghai Composite lost 3.7% of its value, while the
Shenzhen Composite was down just over 4% at the close of the
day’s trading.

The reasons behind the crash are numerous, but are at least in
part down to Chinese investors catching up to the rest of their
Asian counterparts, after a week of losses in Hong Kong, Japan,
and South Korea.

The main driver, however, appears to be a failure from markets to
believe that fresh stimulus from the People’s Bank of China will
help prevent a coming economic slowdown in the country, which is
likely to be driven by US President Trump’s trade war.

“Chinese investors were primarily reacting to a week’s
worth of news and data, and they have a lot to digest, including
the prospect of a slowing and maturing economy and a bubbling
trade dispute with the United States,” Fiona
Cincotta, Senior Market Analyst at City Index said in an
email.

“China is moving towards a more mature economic model from
the one that has driven its remarkable growth in the last 20
years and experiencing growing pains in the process,” she
added.

The fall in Chinese equities comes just a few days after US
banking
JPMorgan cut its outlook from overweight to neutral on the
country’s stock market as a result of the likely negative
impact of the trade war on the country’s growth.

“China sectors such as energy, IT and industrials will be
most impacted based on our analysis, while sectors such as real
estate, insurance, diversified financials, telecom and utilities
generate virtually no revenue from the US,” a team led by Pedro
Martins said in a note.