Crash memories haunt as China stock market dip more than 5

Chinese shares sank more than 5 per cent yesterday in their biggest drop since this summer’s rout after the stock regulator widened its probe on brokerages to include the country’s fourth-biggest securities firm.

Shanghai’s stock market ended the day 5.5 percent lower, while Shenzhen’s composite index, which tracks stocks on China’s second exchange, slumped 6.1 percent.

Haitong Securities Co, also one of the largest which suspended trading of its shares in Shanghai and Hong Kong yesterday, said after market close that it had received a notification from the CSRC over an alleged breach of securities rules.

US stock futures were rising slightly Friday and European stocks traded mixed following a plunge in Chinese markets on regulatory worries.

France’s CAC 40 slipped 0.5 percent to 4,921.22 and Germany’s DAX edged down 0.1 percent to 11,309.69.

In tandem with the moves, many of China’s leading brokerage houses have been plagued by a string of probes and investigations – in many instances, leading executives have simply fallen off the map and have disappeared without contact since September. The Bloomberg Intelligence China H-Share Institutional Brokerage index, which tracks seven Chinese brokerages listed in Hong Kong, also fell 4.9 percent on Friday.

During the selloff, it appeared investors were cashing out of current holdings to invest in new IPOs that were going to be offered next week.

Rival broker Guosen Securities (002736.SZ) is also being investigated.

Wall Street trading was subdued in a shortened post-Thanksgiving holiday trading session, following market closures on Thursday, as shoppers swarmed to Black Friday sales in the kickoff weekend to the important year-end shopping season.

In late August, four senior executives at CITIC Securities confessed to insider dealing during an investigation into the market crash, state media reported.

With Shanghai slumping more than 6% at one point, the sharp losses brought back painful memories of the panic-driven sell-off that struck China’s equities markets in the summer, wiping trillions of dollars off valuations.

Beijing is trying to rid mainland stock markets of collusion between power and money by stepping up investigations of securities companies, analysts said, while warning of shocks to markets that had just stabilised.