Chinese stocks fall further

<p> Fresh government measures have failed to stop the downward spiral.</p>

Mainland Chinese shares have fallen further today (June 7th) despite fresh measures from the government aimed at stemming the sell-off in the volatile market.

The Shanghai Composite Index fell 2.9 per cent to 3,668.59 today and the Hong Kong's Hang Seng shed one per cent to 24,972.54. Chinese shares have fallen nearly 30 per cent after hitting a peak on June 2nd. This represents a loss of £1.5 trillion. Over the week-end, Chinese authorities announced measures to support brokerages and fund managers through the purchase of massive amounts of stocks.

State media quoted by the BBC said 21 brokerages had put more than 128 billion yuan (£13 billion) into a stabilisation fund to meet their weekend pledges 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.

But all measures introduced by the Chinese authorities – including the fourth interest rates cut since November and a relaxation of margin lending rules – have so far failed to stop the downward spiral.

Government measures "not strong enough"

Qi Yifeng, analyst at consultancy CEBM, told Reuters that government measures were not strong enough to reverse the downtrend, "especially as it was a liquidity issue for many who had borrowed to buy shares and were now forced to sell to meet margin calls."

"It's just a matter of whether it will fall more slowly, or continue to slump in freefall," he said.

State authorities have even blamed this economic instability on calculated “foreign forces", with China's financial regulator saying it will investigate suspected market manipulation, and be looking into whether parties were mis-selling financial products.

Local reports said more than 200 Chinese-listed firms would halt trading of their shares, in an attempt protect themselves from the falling stock markets.

However, many analysts believe that the market is autocorrecting. The Shanghai stock market has more than doubled over the past year, even though economic fundamentals do not justify the rise. 

They blame margin borrowing, investor exuberance and monetary easing for pushing up Chinese stocks to stratospheric levels, with a correction all but inevitable.

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