Chinese Investors Face Panic as Stock Market Plummets to Five-Year Low
The Shanghai Stock Exchange experienced a sharp decline on Friday, with stocks hitting a five-year low, causing a sense of panic among Chinese investors. Traders were unable to pinpoint any specific news that prompted the plunge, but concerns about leveraged shareholders being forced to sell off their holdings were cited as a factor in the sudden acceleration of market losses.
The CSI 300 index closed the week with a 4.6% loss, the largest since 2022, while the Shanghai Composite Index experienced a 6.2% decline, marking its worst week since 2018. This drop in stock prices has exacerbated the fragile investor sentiment, with recent geopolitical concerns and the housing crisis, particularly the liquidation order for the China Evergrande Group, adding to the economic pressure on China’s second-largest economy.
Xu Dawei, a fund manager at Jintong Private Fund Management in Beijing, expressed his pessimism, stating, “Even I feel panic and start to become pessimistic.” He noted that the free fall seen in the afternoon trading session indicated forced selling, which could potentially trigger a downward spiral and lead to further margin calls.
Chinese authorities have attempted to address the crisis by implementing monetary stimulus and promising to maintain spending, despite a housing market slump that has affected crucial government revenue sources. However, these measures have not been sufficient to restore investor confidence, as repeated losses have eroded faith in the market’s prospects.
The decline in stock prices has also raised concerns about an increase in margin calls, as the value of shares used as collateral continues to drop. The outstanding amount of marginal debt fell to 1.49 trillion yuan ($208 billion) as of Thursday, fueling fears of a liquidity problem and pressure on investors from snowball derivatives and rising margin calls.
State funds intervened during Friday’s trading session to stabilize the market as the index fell sharply. Foreign investors, who had previously been withdrawing, became net buyers of mainland stocks during the day, further indicating the volatile nature of the market.
Traders and fund managers have expressed a sense of distress and depression in the market, with increased margin calls and little room for further decline. The market’s resilience is being tested, and it remains vulnerable to external economic pressures.
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