Shanghai stocks fall 3.12% by the break

SHANGHAI, China – Shanghai shares dropped 3.12 percent by the break on Wednesday, recovering from earlier heavy falls but still extending their largest daily loss in more than three weeks on concerns of waning government support.

The benchmark Shanghai Composite Index dropped 3.12 percent, or 116.76 points, to 3,631.40. The index had fallen more than five percent earlier in the morning session.

The Shenzhen Composite Index, which tracks stocks on China’s second exchange, was down 2.98 percent, or 64.76 points, to 2,109.66.

Chinese shares have been highly volatile in recent months, plunging more than 30 percent in a matter of weeks in June, after having risen over 150 percent in the preceding year.

The government has launched broad-based intervention efforts to shore up the declines, which sent shockwaves through regional markets.

Measures have included barring “big” investors from selling their stakes and cracking down on short-selling — when investors bet prices will go lower.

But slowing growth and a surprise currency devaluation last week — seen as an attempt to boost stalling exports — have weighed on sentiment, despite a pledge by the market regulator on Friday that it will stabilize stock prices for a number of years.

“Some investors are worried that the government would pull out before the market is fully stabilized,” Li Jingyuan, general manager at Shanghai Zhaoyi Asset Management, told Bloomberg News.

“For regulators, they think these measures have already achieved some effect in saving the market.”

Wednesday’s decline followed a drop of 6.15 percent in Shanghai the previous day, the biggest single-day fall since July 27, when it plunged 8.48 percent.

Gerry Alfonso, a Shanghai-based trader at Shenwan Hongyuan Group, said an absence of a clear direction was causing “overreactions by investors”.

“Eventually the market will turn around,” he said.