China shares plunge in morning trade

[SHANGHAI] Chinese shares plunged in morning trading Monday, extending losses from the past two weeks despite a surprise interest rate cut at the weekend.

The benchmark Shanghai Composite Index dived 3.75 per cent, or 157.39 points, to 4035.48 by midday, while the Shenzhen Composite Index, which tracks stocks on China's second exchange, tumbled 5.93 per cent, or 148.46 points, to 2,354.50.

On Saturday China's central bank announced interest rate cuts of 0.25 percentage points and reduced some reserve requirement ratios - limits on the amounts banks can lend - by 0.50 percentage points.

Initially both Chinese exchanges opened higher, even as Greece imposed capital controls with its debt crisis threatening a possible eurozone exit.

But then the downward momentum resumed.

"It's all about sentiment," Wenjie Lu, Shanghai-based strategist at UBS Group AG told Bloomberg News. "The government needs to continue sending stronger signals and without them, the market seems to have further to go down." When Shanghai peaked on June 12 it had risen more than 150 per cent over the previous 12 months, but by Friday it had plunged 18.8 per cent, while Shenzhen was 20.3 per cent off its top, putting it into bear market territory.

Analysts say the past fortnight's falls were mainly triggered by new restrictions on margin trading and accelerated by growing concern about overvaluations.

But they said the government still wanted the positive trend to continue.

"The rate cut is much earlier than our expectation," Nomura economists wrote in a note. "In this case, we think the easing is to contain the risk of systemic crisis rather than one to achieve faster growth." Monday's official China Securities Journal carried a speech given by the paper's party secretary and editor-in-chief Wu Jincai that claimed Chinese stock markets are set to enjoy a "golden time" that will last for more than three decades.

"As the luckiest generation in the history of the Chinese nation, we are honoured to witness the great Chinese national rejuvenation - the realisation of the Chinese dream," Mr Wu said.

"During the process, a golden time that will last for more than 30 years will be generated in China's capital market."

AFP