More News About: China's stock market >>>

China stocks tumbled by a record number of points yesterday, wiping 3,081 billion yuan (US$402 billion) off their market value in extended losses from last week after the government hiked the stamp tax on share trading.

The benchmark Shanghai Composite Index closed at 3,670.40, down 330.34 points or 8.26 percent, from the previous close Friday. The index has shed more than 15 percent since it struck a high of 4335.18 May 29, when the government tripled the tax to 0.3 percent to cool a feverish bull run.

The slump is the largest decline since Feb. 27 when the index dropped by 8.84 percent, and also the second-biggest drop in a decade.

The smaller Shenzhen Component Index saw a 7.76-percent drop yesterday, closing at 11,468.46 points, down 964.23 points.

The two bourses reported a total turnover of 225.89 billion yuan for the day, down sharply from the previous trading day of 346.58 billion yuan.

About 800 stocks, about one-third of the total, dropped by the maximum 10 percent.

In an apparent attempt by authorities to restore confidence, front-page editorials in official securities newspapers yesterday tried to reassure investors the market's medium- and long-term outlook was still positive, and that the tax hike was merely aimed at speculators.

But that failed to stop selling by many of the anxious and often inexperienced individual investors who had jumped into the market in recent months for what seemed like easy money.

"This is obviously panic selling, and the sentiment is quickly spreading across the market," said Wang Jing, vice general manager at Everbright Securities.

"I knew the market would go down, but I did not expect it would be this fast. After a small plunge, it should go up, but it is not going up," said Madame Wang, a pensioner in her 50s, who put some of her savings into stocks during the bull run.

Many fund managers and analysts in Asia said the index, which had risen 62 percent this year to last Tuesday's close after surging 130 percent in 2006, had room to fall much further in coming days as the excesses of the bull run were corrected.

But many also said they did not believe the market as a whole was going into freefall.

Most worrying to analysts were deep falls in some of the blue chips favored by institutional investors, since those stocks had stayed firm last week even as speculative shares tumbled.

Oil refiner Sinopec, which had risen 16 percent over the final three days of the week, fell by its 10 percent daily limit to 13.65 yuan.

Industrial & Commercial Bank of China, the country's biggest bank, dropped 8.1 percent to 4.99 yuan.

"Most new retail investors are too speculative to envisage the mid- to long-term positive market trend. Their exit will cause a market landing, be it hard or soft," Morgan Stanley said in a report.

Traders see strong technical support for the index around 3,600, where it briefly peaked in mid-April. That level would still leave the market up 35 percent from the start of this year.

"Since the index has even fallen below 3,700 now, I believe the correction is about over," said Zheng Weigang at Shanghai Securities.

Another disillusioned investor at an Everbright Securities branch in Shanghai's financial district, a woman in her 30s surnamed Xu, said:

"I used to have confidence in the stock market. But how can I have confidence now that it has fallen so much. I have no more confidence."

Analysts said the continuous rise of shares over the last 15 months was irrational as are the dramatic falls of the past week.
 
Editor: Yan