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Hong Kong - China’s stocks extended Friday’s plunge in the biggest test for the government since a $5 trillion rout ended in August.
The Shanghai Composite Index sank as much as 3.2%, with a gauge of volatility near its highest level in two months, before paring losses to 1.1% at 07:43.
The declines, which follow a 5.5% loss on Friday, come as policymakers dial back an unprecedented campaign to prop up share prices. Technology and industrial companies led losses in Monday trading.
The two-day drop illustrates the challenge facing Chinese officials as they seek to wean the equity market off government support without precipitating another crash.
As price swings on the index fell to their lowest levels since March, the government lifted a freeze on initial public offerings, raised margin requirements and scrapped a rule requiring brokerages to hold net-long positions.
"The declines reveal that the stability the market saw was just a veneer,” said Michael Every, head of financial markets research at Rabobank Group in Hong Kong, who predicted state- backed funds may intervene to support the market.
The CSI 300 Index fell 0.8%. Hong Kong’s Hang Seng China Enterprises Index dropped for a sixth day, losing 0.1%, while the Hang Seng Index rose 0.2%. The ChiNext index, dominated by technology and new economy shares, lost 1.5%.
IPO shares
Ten companies including Hubei Kailong Chemical Group, which priced its IPO on Friday, start marketing new shares in the first three days of this week.
Nearly every time a new batch of companies took orders over the past year, money-market rates climbed and the Shanghai Composite slumped as investors hoarded cash for their bids.
China’s stock rout from mid-June through August was only halted after the government took a series of measures to backstop the market, including banning major stakeholders from offloading shares, ordering state funds to buy and restricting short selling.
Policy makers also armed one state agency with more than $480bn to prop up shares.
On Friday, there was little sign that government-run funds had stepped in to ease the selloff. PetroChina, long suspected to be a target of state-backed fund buying because of its large weighting in the Shanghai Composite, sank 5.7%.
While government intervention has typically showed up in the last hour of trading, the Shanghai Composite extended losses in the final 60 minutes to close near its lows of the day. PetroChina dropped 1.1% on Monday.
