Chinese shares plunge 5.77%, extending heavy losses

Shanghai climbed 2.39 percent to 3,970.39, advancing for a third straight session after witnessing fierce recent volatility (AFP Photo/-)

Shanghai shares closed down nearly six percent Friday, extending their plunges of recent weeks as analysts said panic was setting in.

The benchmark Shanghai Composite Index slumped 5.77 percent, or 225.85 points, to 3,686.92 on turnover of 648.1 billion yuan ($106.0 billion). The index lost 12.07 percent over the week.

The Shenzhen Composite Index, which tracks stocks on China’s second exchange, plummeted 5.30 percent, or 117.33 points, to 2,098.48 on turnover of 505.1 billion yuan. It lost 16.16 percent in the week.

At their lowest points during another volatile day both indexes were more than seven percent down.

Chinese markets were among the world's best performers earlier this year, with Shanghai rising more than 150 percent over 12 months in a spectacular borrowing-fuelled bull run until it peaked on June 12.

But it has since lost almost 30 percent of its value, putting it firmly in bear market territory, with the losses largely attributed to fears stocks were overvalued, profit-taking and margin traders unwinding their positions.

Margin investors only need to deposit a small proportion of the value of their trade, potentially generating bigger profits but also exposing themselves to bigger losses.

"For now, the mood is verging on panic, and it is extremely hard to calm a bear who is in a rage," Bernard Aw, Singapore-based strategist at IG Asia told Bloomberg News.

Cinda Securities chief strategist Chen Jiahe told AFP: "China has too many retail investors and their state of mind is very unstable and they lack professional investment knowledge.

"Once the market sentiment is reversed, it will start to stabilise," he added.

Interventions by authorities including a surprise interest rate cut at the weekend -- the fourth since November -- and relaxing rules on margin trading have failed to arrest the declines.

"The 4,000 level is the policy bottom with so many government bodies launching market-supportive polices along with the market regulator," Citic Securities analyst Zhang Qun told AFP. "However, the bottom has yet to be reached as investors are now very cautious about putting money in the stock market."

China's securities regulator has pledged to crack down on market manipulation after rumours that foreign short-sellers were behind recent share price plunges.

But an editorial in the Global Times, which is affiliated with the Communist Party mouthpiece People's Daily, dismissed the suggestion, saying: "Not falling for conspiracy theories can help us objectively analyse why there was a stock market slump."