China shares suffer sharpest daily decline since 2007

<p>The Shanghai Composite index tumbled more than 8% on growth worries.</p>

Shares in mainland China have recorded their biggest one-day fall for more than eight years today (July 27th), after official data showed China's industrial profits declined 0.3 per cent year-on-year in June, compared with a 0.6 per cent rise in May and 2.6 per cent gain in April.

This data comes after the preliminary China Caixin purchasing managers index (PMI), a manufacturing index based on a survey of factory purchasing managers, surprised markets by dropping to a 15-month low in July.

The string of weak economic data raised concerns about the health of the world's second largest economy.

Bernard Aw, market strategist at trading firm IG, said the data "added to worries that there could be further weakness in the Chinese economy, after the patch of recent economic data showed signs of stability".

China might hold off from further stimulus

Many analysts believe investors are concerned that China might hold off from further measures to boost the economy.

Chinese stock markets stabilised on July 10th after three weeks of continued losses that wiped out £1.5 trillion. Drastic government measures were introduced to stop the slide, with the China Securities Regulatory Commission banning investors holding more than five per cent of a company's shares from selling any of their holdings for the next six months.

Other measures introduced earlier include a ban on short-selling, a suspension of initial public offerings and the injection by 21 brokerages of 128 billion yuan (£13 billion) into a stabilisation fund to support the market. About 57 mutual fund houses were also reported to have started buying equities using 2.16 billion yuan of their own money. Chinese authorities also cut interest rates for the fourth time since November and relaxed margin lending rules. 

But analysts at the time said the strong moves by the government to restore order in the market could backfire. Evan Lucas, market strategist at trading firm IG, said China's firm response to the turmoil does "create perceptions that further liberalisations and free market principles will be abandoned as Beijing grapples with additional regulations. This will create longer-term issues." 

Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.