China stocks suffer biggest one-day drop since the financial crisis

Jessica Morris
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Beijing's business district (Source: Getty)

There was more pain for investors in Chinese equities overnight after the stock market suffered its biggest one-day fall since February 2007.

China's main Shanghai Composite Index shed 8.5 percent, to 3,725.56 points, while the CSI300 index of the largest listed companies in Shanghai and Shenzhen plunged 8.6 percent, to 3,818.73 points.

Read more: Are Chinese equity markets a bubble waiting to burst or the market unleashing its true potential?

Analysts said that investor sentiment has soured amid fears that the world's no.2 economy would scale back efforts to stabilise its stock market.

Government interventions since mid-June have included suspending IPOs and enlisting hedge funds to buy stocks. Chinese markets had recovered around 15 per cent since then, before Monday's renewed sell-off.

However, they also said that the Chinese stock sell-off isn't a huge cause for concern and the underlying fundamentals are still encouraging.

"While this was one of worst days ever for Chinese stocks, it is important to maintain some measure of perspective. Despite the recent sell-off, the Shanghai index is still 11 per cent higher than when it started the year," Laith Khalaf, senior analyst at Hargreaves Lansdown, said.

"This tells us how far the Chinese stock market has come in such a little space of time. On the back of such stellar performance it is natural for the market to come back down to earth."

"The long term picture is more encouraging. While the exact figures are disputed, China’s economy is still growing at a higher rate than western economies, a positive backdrop for many of the country’s companies. Meanwhile the market appears to be gradually opening up to foreign investment, even if the recent trading suspensions are a retrograde step."

Data released earlier today showed Chinese industrial profits fell 0.3 per cent in the year to June, down from a 0.6 per cent rise a month earlier. This came after a survey on Friday showed Chinese manufacturing contracted by the most in 15 months in July.

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