China stocks slump in early trade

Investors look downcast at a brokerage house in Nantong city, Jiangsu province, July 27, 2015. [Photo/CFP]

China stocks slumped further on Tuesday morning after their worst single-day drop in more than eight years in the previous session, shrugging off Beijing's promises of more support for the market.

Stock regulators said late on Monday they were prepared to buy more shares to support the stock market, and would deal severely with anyone engaged in "malicious shorting".

Reuters reported that the state-run margin lender had repaid loans intended to support the stock market ahead of schedule, alarming investors who feared the government's commitment to supporting the ailing market may be flagging.

The CSI300 index fell 3.1 percent to 3,698.70 points by market opening, while the Shanghai Composite Index lost 3.4 percent to 3,598.10 points.

China CSI300 stock index futures for August pointed to further losses, falling 3.3 percent to 3,635.6, or 63.10 points below the current value of the underlying index.

In Hong Kong, the Hang Seng index dropped 0.6 percent, to 24,199.92 points.

The Hong Kong China Enterprises Index lost 1.1 percent, to 11,106.97.

Related story: Market plunge reignites fears, by Li Xiang, China Daily

Chinese equities plunged on Monday by nearly 8.5 percent, the worst single-day decline in eight years, rekindling investors' fears of a "double dip" after the benchmark index suffered a massive 30 percent loss in June and early July.

The plunge followed the release of disappointing numbers on industrial profit growth and worsening manufacturing data that suggested the Chinese economy is likely to remain flat if not further contract.

The benchmark Shanghai Composite Index sank by 8.48 percent, or 345.35 points, to close at 3,725.56, while the Shenzhen Component Index fell by 7.59 percent to end at 12,493.05.

More than 1,800 stocks in Shanghai and Shenzhen tumbled by the 10 percent daily trading limit.

While anticipation of a technical correction has been on the rise after a steady three-week rebound from the recent low, the scale of Monday's sell-off still caught many analysts and traders by surprise.

"The substantial decline indicated that investors are still worried about excess valuations of stocks, which has weighed on buying sentiment despite the government rescue efforts," said Li Daxiao, chief economist at Yingda Securities.

Market sentiment has also been burdened by rising expectations that the US Federal reserve would raise the interest rate, which could exacerbate capital outflows, as well as the uncertainties over the domestic monetary easing policy, analysts said.

The surging price of pork and the recovery of the housing market are likely to drive up inflation, possibly complicating Beijing's monetary easing policies, EverBright Securities said in a research note, adding that the A-share market is unlikely to move out of its current mess if the monetary policies and market reforms fail to convince  Monday's sell-off also shattered many investors' hopes that a government-backed rally would be sustainable.

Anxiety has grown that the government was considering withdrawing its market-rescuing effort after the benchmark index had rebounded by 15 percent, before Monday's sell-off.

The China Securities Regulatory Commission said on Monday night that the State-owned margin lender China Securities Finance Corp will continue to boost its holdings to support the market.

"China Securities Finance Corp hasn't retreated and is looking for chances to buy in to continue stabilizing the market," said CSRC spokesman Zhang Xiaojun.