How exposed are you to the volatile Chinese stock market?

Regarding Chinese stock investors, he said individual investors now account for about 20 per cent of market capitalisation with their source of funds being household savings and margin loans, resulting in forced sales when share prices fall sharply.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen closed down 6.8 percent yesterday, while the Shanghai Composite Index dropped 5.9 percent.

More than 500 China-listed companies announced trading halts on the Shanghai and Shenzhen exchanges on Wednesday, taking total suspensions to about 1,300 – 45 per cent of the market or roughly US$2.4 trillion (RM9.1 trillion) worth of stock – as companies sought to sit out the carnage. Shareholders who hold more than 5 percent of a company’s shares must not reduce their holdings in the coming six months.

The latest government measure was aimed to “maintain stability of the capital market and earnestly protect investors’ legal rights”, the China Securities Regulatory Commission (CSRC) said on its verified microblog late on Wednesday.

The Shanghai index has lost more than 30 percent of its value since a spectacular bull run ended with a peak on June 12, driven lower by restrictions on margin trading, concerns about overvaluations, and fears of further losses.

Chinese stocks rebounded around six per cent on Thursday, as Beijing’s increasingly frantic attempts to arrest a sell-off that has roiled global financial markets finally appeared to gain a few traction. Between those and all the stocks that are down by their daily limit, sellers are locked out of more than 70% of the market.

ANALYST VIEW: “Movements in the Chinese stock market don’t necessarily correlate to China’s economy”, said analyst Jasper Lawler at CMC Markets in Singapore.

The sell-off came despite the government ramping up efforts to stabilise the market, including China Securities Finance Corp giving 260 billion yuan (S$57 billion) in credit lines to 21 brokerages to help them buy stocks.

Last week, the Bank of China cut short-term interest rates for the fourth time this year.

China’s leaders struggled to calm nerves after mainland stocks suffered the fall, while big losses were also seen around Asia, with Tokyo, Taipei and Sydney worst hit.

On Wednesday, Japan’s Nikkei was down more than 3 percent.

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.

“It shouldn’t be a surprise when markets perhaps tend to get ahead of themselves and there is in retrospect what might have been a bubble”, Foerster said.

Millions of novice investors piled into the Chinese market when it was at its most frothy.

What is China’s government doing about it?

“But it is far from calling it a victory for the rescuers as more than half of listed companies are not trading”.

This is not illegal in China, but Xinhua said authorities “were about to crack down on operations in violation of the law and regulations in a heavy-handed manner”.