China’s benchmark Shanghai Composite tumbled more than 6% on Thursday as ongoing concerns about the tighter liquidity and currency depreciation.
The Shanghai Composite Index sank 6.4 percent to 2,741.25, the biggest drop in a month. Before this drop, the market had a rally of about 10% since January.
Tighter liquidity in the financial system signaled that market confidence is very weak. China’s overnight repurchase rate, a measure of liquidity in the financial system, rose 14 basis points to 2.11 percent.
“Market confidence is very weak so an increase in money-market rates triggered a sell-off today,” said Wu Kan, a fund manager at JK Life Insurance Co. in Shanghai. “Technically speaking, the rebound has reached its target and a new round of declines is resuming. I am not too sure that the government will step in to buy stocks now,”
The plunge comes when China prepares to host a G20 meeting on Friday in shanghai where all Finance chiefs and central bankers from the group will meet together. It is a challenge for China’s policy makers to show its ability to maintain stable financial markets while the economy growth slows.
The start of 2016 is not good for the Chinese stock market. The Shanghai Composite has fallen 23 percent his year, the second worst performance in the world. The stock market tumbled as the policy makers announced the circuit breaker policy at the beginning of the year. Also the concerns about the slow down economy and currency deprecation push the stock market plunged further.
The G20 meeting will be the first test for Xiao Gang, China’s new top securities regulator, who took over last week. His predecessor Guo Shuqing was removed and blamed for his mismanagement. We will see how the new securities regulator deal with the volatility and keep the Chinese stock market healthy.