China’s stock market crash on Wednesday – that prompted a panic selloff across all asset classes – also hit India and other Asian markets. The benchmark indices posted their biggest single-day fall in a month.
The Sensex fell 483.97 points or 1.72% to end at 27,687.72, whereas the Nifty lost 147.75 points or 1.74% to settle at 8,363.05. Even broader markets witnessed heavy selling pressure with the BSE Mid- and Small-cap indices falling more than 1% each.
Major Asian indices also witnessed deep cuts with Japan’s Nikkei, South Korean KOSPI, Singapore’s Straits Times, Taiwan’s Taiex ending down 1-4% each. Even US stock futures declined nearly 1%.
China’s benchmark stock indices tumbled to a three-month low as another round of government support measures failed to allay concern that margin trades will keep unwinding at a record pace. The Shanghai Composite slid 5.9% to 3507.19 at the close. With at least 1,331 companies halted on mainland exchanges and another 747 falling by the 10% daily limit, sellers were locked out of 72% of the Chinese market.
The suspensions have locked up $1.4 trillion of shares, or 21% of China’s market capitalisation. Traders unloaded 98.3 billion yuan ($15.8 billion) of shares purchased with borrowed money on the Shanghai exchange Tuesday, the 12th straight day of declines. A five-fold surge in margin debt over the 12 months through June 12 had helped propel the Shanghai index to a more than 150% gain.
According to UBS China economists, a rapid and sharp rally in the past few months led to bubbly market conditions, and regulators took measures to cool down the market. “Chinese government stepped in quite quickly in an effort to stabilise the market… We see limited impact of the stock market turmoil on China’s real economy. Equity has played a relatively small role in the financing of the real economy, though that has been something the government wanted to change,” Tao Wang, economist, UBS stated in a research note.
Back home, selling by domestic as well as foreign funds led to sharp cuts across the board. Foreign portfolio investors (FPIs) net sold $55.66 million of shares in the cash segment, while their domestic counterparts also sold securities worth $54.40 million (R346.71 crore), showed provisional data from stock exchanges.
Market breadth was weak and all sectoral indices traded in the red. Twenty nine out of 30 Sensex companies ended in the red. Overall, more than 1,800 stocks ended down compared with 942 stocks that advanced on Wednesday.
“Chinese stock market is a bigger headache. What is more concerning is the loss of liquidity for investors. Those investors who want to get out of the markets cannot do so. Stopping trading in stocks is no solution to the downfall, in our view. Such measures put unnecessary pressure on the stocks which still trades and they have to endure the pent up supply of stocks, which makes them go down more,” HDFC Securities wrote in an investor note.
Metal and automobile stocks were the biggest losers as the rout in China led to slump in global metal prices. sank to its lowest level since August 2013. Hindalco Industries lost 5% while Tata Steel and SAIL slumped 5.5% each, taking the BSE Metals index down 3.9%.
Tata Motors plunged to a 14-month low on concern that China sales of its Jaguar Land Rover unit would slow. BHEL slid for a second day while State Bank of India headed for its first drop in seven days.