China stocks tumble

China stocks fell more than 1 percent on Thursday, led by resources shares, after state media reported that 35 domestic brokerages have resumed short-selling business following a long hiatus. Major indexes had their biggest one-day fall in two weeks, with the bluechip CSI300 index declining 1.7 percent to 3,181.85 points, and the Shanghai Composite Index sliding 1.6 percent to 2,960.97. Stocks fell across with board, with energy and raw material shares among the biggest decliners.
Many Chinese financial institutions voluntarily halted margin lending and stock shorting activities during China's mid-2015 stock market crash, in response to heavy pressure from Beijing. Analysts say that on resumption, the volume of the business, which allows investors to sell borrowed stocks and profit from price declines, is expected to be negligible.
But the move could have a psychological impact on a market which is facing increasing selling pressure following a robust rebound. China's main indexes have gained more than 10 percent over the last month but several attempted rallies since last summer's slump have proved short-lived. While short selling was never made completely illegal, state investigations into "malicious short-selling" combined with restrictions on same-day shorting implemented in August had a chilling effect.
Analysts say that on resumption, the volume of the business, which allows investors to sell borrowed stocks and profit from price declines, is expected to be negligible. But its resumption could have a psychological impact on a market facing increasing selling pressure. "The market has had a solid rebound over the past month, so the news could give some investors another reason to take profit," said Zhang Xiaochun, analyst at Guolian Securities Co.
"Increasing volatility is natural at this stage. We're still in a bear market, so I don't see big room on the upside." She added that the stock market is still vulnerable to volatility in the currency market, as the yuan remains under pressure despite recent calm.
In another report Chinese share investors increased their leveraged bets for a fifth consecutive session, while the number of new stock investors rose for five straight weeks, a reflection of growing confidence in the domestic stock market. Outstanding margin loans - money Chinese investors borrowed from brokerages to buy stocks - grew everyday over the past week, according to China Securities Finance Corp Ltd, the state margin lender. But at the same time, the trend of investors parking more money in money market funds, the perceived safe haven assets, continues. Assets of money market funds swelled 13 percent from the previous month to 4.4 trillion yuan ($675.18 billion), accounting for 58 percent of China's 7.7 trillion yuan mutual fund industry. That's the highest proportion on record, according to fund consultancy Z-Ben Advisors.