Chinese stocks plunged to their lowest level in 13 months on Jan 28, fueling growing concerns over the country's capital market.

The Shanghai Composite Index closed at 2655.66 points

on Jan 28, down 2.92 percent. The fall followed a 6.42 tumble on Jan 26, its biggest loss since the first week of January. The ChiNext startup index in Shenzhen slumped 7.63 percent on that day.

The sell-off on Jan 26 triggered a market stampede, as more than 1,000 stocks fell by the 10 percent daily trading limit.


An investor at an exchange center in Nantong, Jiangsu province on Jan 26. Xu Congjun / For China Daily

"It was panic selling amid a reduced risk preference from investors," says Li Xunlei, chief economist at Haitong Securities. However, he says the sell-off did not necessarily suggest any further deterioration of the economy.

The sell-off intensified during the afternoon despite the central bank pumping 440 billion yuan ($66.8 billion; 61.6 billion euros) into the market to ease liquidity pressure ahead of the Spring Festival holiday.

Investors' shrinking appetite for the volatile market was highlighted by the continued reduction of shareholdings by margin traders who borrowed money to buy stocks.

Shares hit 13-month low amid rush to sell

Hong Hao, chief strategist at investment bank BOCOM International in Hong Kong, says the bearish trend is not over, despite the monetary authority's intervention to calm fluctuations in the renminbi exchange rate.

The Shanghai index has slumped 22 percent this year. Analysts have attributed the decline to factors including concerns about a slower economy, slumping oil prices.

The market volatility has also triggered investors' concerns over the health of the Chinese banking sector.

According to a report by global rating agency Moody's, "Chinese commercial banks show little direct holdings of listed stocks, except for associated companies, so their direct exposure to recent stock price volatility is low."

But the agency warns that some banks that are more involved in extending stock loans, distributing stock-related wealth management products and providing custody services to stock funds could see pressure on their asset quality and profitability if market weakness persists.

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(China Daily European Weekly 01/29/2016 page25)

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