China’s stocks tumbled to the lowest levels in 13 months amid concern capital outflows will accelerate as the economy slows and support for the yuan eats into the nation’s foreign reserves, Bloomberg reports.
The Shanghai Composite Index plunged 6.4 percent to 2,749.79 at the close. All industry groups slumped, ranging from commodity shares to new-economy sectors such as technology. Besides data showing outflows hitting an estimated $1 trillion last year, investors were concerned about a possible liquidity squeeze even as the central bank flooded the financial system with cash before the upcoming Chinese new year holiday. Some of the nation’s most accurate forecasters said the stock index may not bottom until it falls to the 2,500 level.
Tuesday’s loss was the steepest since Jan. 7, when the Shanghai gauge plunged 7 percent, the second selloff of more than 6 percent in a week that prompted the government to cancel its circuit-breakers program after four days. Stocks dropped even as the People’s Bank of China injected 440 billion yuan ($67 billion) into the financial system using reverse-repurchase agreements, the most in three years. Policy makers are trying to keep borrowing costs from rising as they contend with the slowest economic growth in a quarter century.
China’s gross domestic product growth is seen slowing further to 6.5 percent this year, from last year’s 6.9 percent. Outflows jumped in December, with the estimated 2015 total reaching a record $1 trillion, more than seven times higher than the whole of 2014 based on Bloomberg Intelligence data dating back to 2006.
The CSI 300 Index fell 6 percent, led by industrial, energy and technology shares. XCMG Construction Machinery Co., China’s biggest crane maker, and Shenzhen O-film Tech Co. plunged by the 10 percent daily limit. PetroChina Co., the largest energy company, dropped 4.7 percent.
The Shanghai Composite’s 47 percent rout since June has been accompanied by an economy losing momentum, similar to the global financial crisis, when the gauge lost more than two-thirds of its value from peak to trough over the course of a year. The gauge will bottom once it falls to 2,500 this year, said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. That matches the target of Bocom International Holding Co.’s Hao Hong, one of the few forecasters to call both the start and peak of China’s last equity boom.