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Shanghai - China’s stocks extended the biggest two- month tumble since 2008 amid growing concern that government intervention to prop up the market will fail.
Brokerages led a 1.7% retreat in the Shanghai Composite Index on Monday after the securities regulator was said to order the industry to boost its contribution to the nation’s market rescue fund.
Citic Securities dropped 6.9% after Xinhua News Agency reported that company executives were detained on suspicion of insider trading. Bearish bets in the options market climbed as traders weighed the level of state support before a World War II victory parade this week.
Swings in Chinese markets this month have rattled investors worldwide as they struggle to anticipate policy actions in the world’s second-largest economy.
Stocks rallied almost 10% over Thursday and Friday on speculation authorities are propping up markets before President Xi Jinping takes the stage at the parade, which the government will use to demonstrate its rising military and political might.
“There is a lot of confusion about purchases of stocks by state-linked funds,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group in Shanghai. “Disclosures are very limited so it is impossible to know what they are doing with certainty.”
The Shanghai gauge declined for the first time in three days, losing 59 points to 3 173.62 at 08:17 and taking its decline this month to 13% after plunging 14% in July. The CSI 300 Index retreated 1.5%. Hong Kong’s Hang Seng China Enterprises Index fell 0.6%. The Hang Seng Index lost 0.2%.
The government revived its intervention in equities on Thursday to halt the biggest selloff since 1996. The effort to support markets was part of a broader push to ensure nothing detracts from the parade.
China’s financial markets will be shut Thursday and Friday to commemorate the event. Hong Kong’s bourse will be closed on Thursday.
China’s securities regulator asked brokerages to step up their support for share prices by contributing 100 billion yuan to the nation’s market rescue fund and increasing stock buybacks, according to people familiar with the matter.
The China Securities Regulatory Commission gave the order at a meeting with representatives of 50 brokerages on Saturday, which CSRC Chairman Xiao Gang also attended, said the people who asked not to be identified because the meeting hasn’t been made public.
Four executives of Citic Securities, the nation’s largest brokerage, a journalist at business magazine Caijing and a staff member at the CSRC all confessed to alleged stock-related crimes, Xinhua said.
A gauge of financial companies in the CSI 300 dropped 1.2%. Haitong Securities declined 6.8%, while Western Securities slumped 6.7%. China Construction Bank lost 0.8% as the lender joined its domestic rivals in reporting zero profit growth in the first six months of the year.
Gree Electric Appliances, China’s largest manufacturer of air-conditioners, led declines for consumer companies reliant on economic growth.
The company’s shares dropped 6.7% after saying its first-half net income rose 0.05% from a year earlier. Gauges tracking consumer, material and technology companies slid at least 4% on the CSI 300.
The statistics bureau is due to release an official manufacturing index for August on Tuesday. The gauge, known as the Purchasing Managers’ Index, probably fell to 49.7 from 50 in July, according to the median estimate of a Bloomberg survey. A reading below 50 indicates contraction.
Puts that pay out on a 10% drop in the China 50 exchange-traded fund cost 9.3 points more on Monday than calls betting on a 10% gain, according to implied volatility data on one-month contracts. As recently as August 24, the bullish contracts were more expensive.
For the US-listed Deutsche X- trackers Harvest CSI 300 China A-Shares ETF, the skew reached a record 38 points on August 27 and closed the week at 28 points.
