China: Shanghai shares tumble on profit-taking, economy and valuation worries

[SHANGHAI] Shanghai stocks had their worst performance in eight weeks on Wednesday, tumbling more than 2 per cent and breaching a key technical support level as investors who are increasingly worried about the economy took profits from a long rally.

Although no specific event appeared to trigger the abrupt sell-off, traders and analysts listed several contributing factors, including reduced stimulus hopes, disappointment over economic restructuring, rising credit risks and lofty valuations of small-caps.

The Shanghai Composite Index slumped 2.3 per cent to 2,972.58 points, breaching 3,000 - seen by many as a key technical support level.

The blue-chip CSI300 index erased some earlier losses and ended the day down 1.8 per cent at 3,181.03, aided by a late reversal in banking stocks Small-caps were among the worst casualties, with Shenzhen's start-up board ChiNext shedding 5.5 per cent.

"From a purely technical perspective, current trading volume is too small to lift indexes upward further," said Samuel Chien, a partner of Shanghai-based hedge fund manager BoomTrend Investment Management Co.

And in terms of fundamentals, "there're still too many problems in China's economy... while many stocks are too expensive," said Mr Chien, who said he shorted China stocks on Wednesday using index futures and options.

REUTERS