Chinese shares heavily down in morning trade

A man reacts as he looks at stock market prices at a brokerage house in Shanghai, China, Monday, June 29, 2015. Chinese shares plunged more than five percent within an hour of markets opening Tuesday, June 30, 2015, extending falls that have put markets into bear territory despite a surprise interest rate cut at the weekend. AP

SHANGHAI, China – Chinese shares plunged more than five percent within an hour of markets opening Tuesday, extending falls that have put markets into bear territory despite a surprise interest rate cut at the weekend.

The benchmark Shanghai Composite Index slumped 5.03 percent, or 203.97 points, to 3,849.06, before recovering slightly in volatile trade.

The Shenzhen Composite Index, which tracks stocks on China’s second exchange, tumbled 6.33 percent, or 148.92 points, to 2,202.48.

When Shanghai peaked on June 12 it had risen more than 150 percent over the previous 12 months, partly fueled by margin trading — in which investors borrow cash to invest in stocks, a practice that enhances both profits and losses.

Both Shanghai and Shenzhen have since fallen by more than 20 percent, a common definition of a bear market.

Analysts said the falls may become self-sustaining.

“The correction in the market made investors rather nervous,” Gerry Alfonso, Shanghai-based director at Shenwan Hongyuan Group, told Bloomberg News. “It is difficult to change investors’ perception after such a significant correction.”

According to analysts, the past fortnight’s falls were mainly triggered by new restrictions on margin trading and accelerated by growing concern that stocks were overvalued.

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.

But the move did not arrest the declines.

“Any support the government can provide would be short lived,” said Chad Padowitz, the Melbourne-based chief investment officer at Wingate Asset Management.

“The only real support they can provide over time is providing a reasonably balanced, growing economy. Anything they do short term, decreasing interest rates to support the market or things like that, are somewhat foolish.”

China’s official earthquake monitoring service weighed in on the falls, with its verified Sina Weibo account posting on the regulator’s own page that there were earthquakes of various magnitudes and types but “their shared feature is the disastrous damages caused are severe”.

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