Chinese stocks fell sharply on Thursday as heavy selling in the energy sector and worries about the levels of borrowing in the stock market added to broader concerns over growth and the global sell-off in equities. The Shanghai Composite index closed down 2.9 percent at 2,486.42, after hitting its lowest point since November 2014 on Thursday morning. The blue-chip CSI300 index was down 2.4 percent.
Li Zheming, an analyst at Datong Securities in Xi'an, said the market was dragged down by a confluence of factors, and that overall market sentiment was weak on Thursday. "Investors have been concerned about risks posed by shares pledged for loans," said Li Zheming, referring to the jump in margin lending where major investors in companies borrow by pledging their shares.
"There is also some connection with the fall in oil prices," he said. More than 637 billion shares worth 4.44 trillion yuan ($639.86 billion) were pledged for loans as of October 12, according to Reuters' calculations based on data from the China Securities Depository and Clearing Co (CSDC).
Chinese stocks have fared worse than other stock markets in Asia this year, particularly in recent weeks as global equities bear the brunt of a simmering US-Sino trade war and the prospect of further policy tightening by the US Federal Reserve. There was barely any palpable relief on news that the US Treasury Department had refrained from naming China a currency manipulator in its semi-annual report released on Wednesday.
Instead, minutes from the Fed's September 25-26 meeting, which showed every Fed policymaker backed raising interest rates last month, warnings from China's premier that the economy faces increasing downward pressure, and worries ahead of GDP data Beijing is due to release on Friday weighed on markets. The yuan ended domestic trading at its weakest close against the dollar since January 2017.
So far this year, the Shanghai stock index is down 24.8 percent and the CSI300 has fallen 24.5 percent. Shanghai stocks have declined 11.9 percent this month. Energy stocks were led lower by falling energy prices. CSI's sub-index tracking energy stocks was down 4.91 percent. The CSI 300 financial sector sub-index was lower by 2.08 percent, the consumer staples sector down 2.17 percent, the real estate index off 1.82 percent and healthcare sub-index 3.89 percent lower.
The across-the-board decline came after a brief bounce-back on Wednesday. Hong Kong's stock market, reopening after a holiday on Wednesday, closed flat on Thursday. Around the region, MSCI's Asia ex-Japan stock index was weaker by 0.65 percent, while Japan's Nikkei index closed down 0.8 percent.
China's smaller Shenzhen index ended down 2.73 percent and the start-up board ChiNext Composite index was weaker by 2.18 percent.