Chinese shares plummeted more than seven percent on Friday on concerns they are overvalued and margin traders closed positions, while Hong Kong was also dented by concerns over Greece’s stalled debt reform talks.
The benchmark Shanghai Composite Index closed down 7.40 percent, or 334.91 points, to 4,192.87 on turnover of 787.8 billion yuan ($128.9 billion). The Shanghai market lost 6.37 percent over the week.
The Shenzhen Composite Index, which tracks stocks on China’s second exchange, plunged 7.87 percent, or 213.75 points, to 2,502.96 on turnover of 555.1 billion yuan. It dropped 8.72 percent for the week.
Chinese shares have more than doubled in value over the past year, partly driven by margin traders flooding the markets with borrowed money as they bet on Beijing announcing a slew of monetary easing measures to kickstart a slumbering economy.
Authorities have cut interest rates twice since November and lowered the amount of cash banks must hold in reserve in a bid to boost lending.
But since they peaked two weeks ago both indexes have lost about a fifth of their value.
Shanghai corrected sharply last week as investors booked profits, dropping 13.32 percent, and analysts said on Friday that more leveraged investors were closing their positions.
“Margin traders, especially over-the-counter leveraged traders, reduced or closed their positions on the market, which is the main reason for the plunge,” Zhang Gang, an analyst from Central China Securities told AFP.
Outstanding margin debt in Shanghai dropped for a fourth straight day on Thursday to 1.42 trillion yuan ($228 million), Bloomberg News reported.
– Cracks showing –
“China’s stock market is starting to show some cracks as more investors are questioning the sustainability of valuations,” Jonathan Ravelas, a chief market strategist at BDO Unibank, told Bloomberg News.
China’s central bank injected liquidity into the banking system on Thursday after halting open market operations for several weeks.
Highway stocks led the plunges in Shanghai. Sichuan Expressway slumped by its daily 10 percent limit to 6.98 yuan, and Jiangsu Expressway tumbled 9.77 percent to 8.96 yuan.
Communications shares tumbled in Shenzhen. Tongding Interconnection Information plunged by its daily 10 percent limit to 19.31 yuan, and Zhongxing Telecommunication Equipment fell by its daily 10 percent limit to 23.62 yuan.
In Hong Kong the benchmark Hang Seng Index fell 481.88 points to 26,663.87 on turnover of HK$151.28 billion (US$19.52 billion).
The losses were in line with a global retreat after marathon talks between Greece and its creditors on reforming its bailout ended without agreement in Brussels Thursday.
With days to go before a June 30 deadline for Athens to pay an IMF debt, the two sides are yet to find common ground on some issues, particularly on tax and pensions reform, to unlock much-needed cash.
Failure to agree will mean Greece defaults and possibly crashes out of the eurozone, or even the European Union.
“We have not made the necessary progress. In some areas one even gets the impression that we have moved backwards,” German Chancellor Angela Merkel told reporters as she arrived for the Brussels summit.
The deadlock once again hit US shares. The Dow fell 0.42 percent, the S&P 500 lost 0.30 percent and the Nasdaq eased 0.20 percent.
European shares mostly retreated, although Athens ended slightly higher.
In Hong Kong share trading, Tencent shed 1.30 percent to HK$159.90, HSBC sank 1.51 percent to HK$71.95 and China Mobile lost 1.48 percent to HK$99.80.
AIA insurance giant gave back 1.71 percent to HK$51.80 and China Resources tumbled 5.12 percent to HK$21.30.