[SHANGHAI] China's stocks plunged the most since 2007 as government support measures failed to allay investor concern that a slowdown in the world's second-largest economy is deepening.
The Shanghai Composite Index tumbled 8.5 per cent to 3,209.91 at the close. The Hang Seng China Enterprises Index lost 6.5 per cent at 3:08 pm in Hong Kong, heading for its biggest decline since 2011. Futures on the CSI 300 Index fell by the 10 per cent daily limit.
Worsening economic data and signs of capital outflows are undermining unprecedented government attempts to shore up the country's US$6 trillion stock market. While China said over the weekend it will allow pension funds to buy shares for the first time, a speculated cut in bank reserve ratios failed to materialize.
"This is a real disaster and it seems nothing can stop it," Chen Gang, Shanghai-based chief investment officer at Heqitongyi Asset Management Co. "If we don't cut holdings ourselves, the fund faces risk of forced closure. Many newly started private funds suffered that recently. I hope we can survive."
More than 800 stocks fell by the daily 10 per cent limit on the Shanghai Composite, including China Shenhua Energy Co and China Shipbuilding Industry Co. The gauge has tumbled 38 per cent from its June 12 peak to wipe out more than US$4 trillion of value.
The Hang Seng Index sank 5 per cent in Hong Kong. The gauge's relative strength index declined to 15, the lowest since the aftermath of the October 1987 stock market crash. A level below 30 signals to some traders losses are overdone. Taiwan's Taiex index slid as much as 7.5 per cent.
Economic growth slowed to 6.6 per cent in July, according to Bloomberg's monthly GDP tracker. China's first major economic indicator for August signaled a further deterioration as a private manufacturing index fell to the lowest level in six years.
"China's economy is pretty ugly and some sectors have bubbles," said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co, who's keeping his holdings unchanged.
"Selling pressure around global markets is also weighing on local sentiment. The Shanghai Composite may fall to around the 3,000- point level."
Stocks on mainland bourses traded at a median 61 times reported earnings on Friday, according to data compiled by Bloomberg. That's the most among the 10 largest markets and more than three times the 19 multiple for the Standard & Poor's 500 Index.
Yuan positions at the central bank and financial institutions fell by the most on record last month, a sign capital outflows have picked up. Chinese equity funds were the biggest contributors to more than US$4 billion of outflows in Asia excluding Japan in the week to Aug 19, EPFR Global said. Margin traders reduced holdings of shares purchased with borrowed money for a fourth day on Aug 21.
Industrial and Commercial Bank of China Ltd., the second largest, fell the most since Jan 19 with a 9.7 per cent slump. Agricultural Bank of China Ltd slid 9.3 per cent. PetroChina Co, long considered a favorite holding of state-linked rescue funds, tumbled 4.9 per cent.
The State Council, or cabinet, on Sunday announced it will allow pension funds to invest as much as 30 per cent of their total net assets in stocks. Pension funds had net assets of 3.5 trillion yuan (S$773 billion) by the end of 2014, Xinhua News Agency reported.
The move is the latest attempt by the government to support the equity market, after arming a state agency with more than US$400 billion, banning selling by major shareholders and telling state-owned companies to buy stocks.
"The news on pension funds over the weekend was positive, but not having the expected required-reserve ratio cut or any other larger measure seems to have disappointed investors," said Gerry Alfonso, a Shanghai-based trader at Shenwan Hongyuan Group Co.
"But it is questionable whether even with one the market would have rebounded."