China markets in the grip of ‘panic selling’

China stocks have taken another plunge, as the securities regulator warned the market was in the grip of ‘panic’ selling after fresh government moves failed to arrest a rout that has now infected regional markets.

Confidence took a hit as trading halts expanded to cover more than 1,300 companies – nearly half of mainland listings – to prevent further sharp declines in their stock prices.

The benchmark Shanghai Composite Index closed down 5.90 per cent, or 219.93 points, to 3,507.19.

The Shenzhen Composite Index, which tracks China’s second exchange, dropped 2.50 per cent, or 48.38 points, to 1,884.45.

‘There’s really panic out there,’ Tony Chu, a Hong Kong-based money manager at RS Investment Management Co, told Bloomberg News.

‘I wouldn’t suggest catching the falling knife.’

The latest tumble came despite the government announcing new measures to support the market, including allowing insurance companies to invest more assets in stocks and a program to buy the shares of smaller companies.

‘Investors’ panic and irrational sell-off caused a liquidity strain on the stock market,’ Deng Ge, a spokesman for the China Securities Regulatory Commission (CSRC) – the market watchdog – was quoted by state media as saying.

Asian bourses, already under pressure from the protracted Greek debt crisis, also posted sharp declines as contagion from the rout in China spread, with investors running for safe-haven assets such as the yen.

Hong Kong equities plunged 5.84 per cent to their lowest close since early January, Tokyo dropped 3.14 per cent and Sydney retreated 2.01 per cent.

US-listed Chinese stocks were also marked down overnight despite gains across all three main indexes on Wall Street.

By the close on Wednesday, the Shanghai market was down 32 per cent from its peak on June 12, when it had risen by more than 150 per cent in 12 months, in a borrowing-fuelled frenzy powered by millions of new retail investors.

Analysts say the resulting deep correction has been mainly triggered by new restrictions on margin trading – a practice that magnifies both profits and losses – and accelerated by concern about overvaluations.