The bear market in Chinese stocks deepened on Friday as the main index tumbled 3.00 percent to a new 15-month closing low, leaving it down 13.89 percent over the week, its biggest weekly drop since 1996. Shares slid across the board, led by brokerages and real estate developers, in response to tightening monetary policy and fears that rising raw material prices would slow corporate profit growth.
Turnover was very thin as few buyers entered the market. The Shanghai Composite Index closed lower for the eighth straight day, ending at 2,868.800 points, just off an intra-day low of 2,865.500. It has plunged 53 percent from last October's record peak.
"This month has seen an earthquake in the stock market. It will be very hard for confidence to revive," even if regulators intervene to try to support the market as some investors still hope, said Zhang Qi, analyst at Haitong Securities.
Falling Shanghai stocks outnumbered gainers by 831 to 69 on Friday, with over 40 Shanghai A shares down their 10 percent daily limits. Turnover in Shanghai A shares was a very thin 45.0 billion yuan ($6.5 billion), near its lowest levels since 2006, before last year's bull run lured millions of new investors to the market.
The index broke on Friday below a band of technical support between 2,956 points, the 61.8 percent retracement of its bull run from mid-2005, and a low of 2,990.788 hit on April 22. Technical analysis suggests that area will now become resistance. Analysts said there was a good chance of a drop to 2,800 points in coming days, and some are talking of the market reaching 2,500 in coming weeks.
Ha Jiming, chief economist at China International Capital Corp, noted in a report that while data this week showed May consumer price inflation had eased a bit to 7.7 percent, producer price inflation rose to 8.2 percent - exceeding consumer inflation for the first time in 15 months.
Brokerage shares were big losers on Friday because securities houses would face lower commissions during a prolonged market slump. Brokerage stocks rose early this week on rumours that authorities might soon introduce margin trade to help support the market, but hopes for that intervention are now fading. Haitong Securities plunged 10 percent to 24.12 yuan. Property giant Vanke dropped 4.90 percent to 16.50 yuan, and was down 16 percent over the week.
China United Tele-communications, the most active stock, sank 4.03 percent to 7.16 yuan. It has lost 27 percent since the start of last week in the wake of a restructuring announcement by Hong Kong-listed affiliate China Unicom. China and Taiwan on Friday signed a landmark deal which will permit regular, direct weekend charter flights between them and let Chinese tourists visit the island in large numbers.
Xiamen Airport, which is located in Fujian province across from Taiwan and could therefore benefit from direct air links, rose 1.18 percent to 18.08 yuan, while airline stocks outperformed the market. Shanghai Airlines gained 1.27 percent to 6.40 yuan on speculation that it will be allocated some of the charter flights, which could have a relatively large impact on the small carrier's business.