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Stocks slump 4.47% in global battering

By Zhou Yan (China Daily)
Updated: 2008-09-17 10:01

An investor monitors price fluctuations at a securities house in Shanghai. Hit by the latest ripple effect of the US financial crisis, the benchmark index tumbled 4.47 percent to 1986.64, dipping below 2000 points for the first time in 22 months.[Reuters]

Hit by the latest ripple effect of the US financial crisis, the benchmark index tumbled 4.47 percent to 1986.64, dipping below 2000 points for the first time in 22 months.

The Shanghai Composite Index plunged 93.04 points, and the smaller Shenzhen Component Index dropped 61.46 points, or 0.89 percent, to end at 6873.61.

Turnover on the two bourses was 47.3 billion yuan ($6.91 billion), up 42.5 percent from last Friday. Total market capitalization shrank 3.7 percent to 12.9 trillion yuan yesterday.

The index was dragged under the 2000-point barrier by a sharp fall in bank shares.

Analysts said fallout from the failure of Lehman Brothers and the fire sale of Merrill Lynch has unnerved investors, who began dumping bank shares at the opening bell.

"The US stock market turmoil overnight dampened Chinese investor confidence and knocked the emerging financial markets," Zhu Haibin, an analyst at Essence Securities, said.

On Monday, the major global stock indexes, in response to Lehman's demise, suffered their worst plunge since 9/11. The Dow Jones slid 504.48 points, or 4.42 percent, to end at 10917.51. The S&P 500 index sank 4.71 percent, to close at 1192.7. The NASDAQ composite index fell 3.6 percent, to 2179.91.

Lehman Brothers, the fourth largest investment bank in the United States, announced its bankruptcy on Monday after failed rescue talks with Barclays Plc and Bank of America.

Bank of America will instead buy into Merrill Lynch with $50 billion, while insurer AIG also needs to raise $40 billion to survive the credit storm.

Monday's lending rate cut by the central bank also contributed to the bank stocks' slide, analysts said.

The People's Bank of China cut the one-year lending rate by 0.27 of a percentage point to 7.3 percent, but the deposit rates stay unchanged.

"Large banks were negatively affected by this news because a lending rate cut with an unchanged deposit rate will squeeze the banks' net interest profits, and therefore restrain their profit growth," Wei Daoke, an analyst at Shenyin & Wanguo Securities Co Ltd, said.

The central bank also lowered the reserve requirement ratio (RRR) for small banks by 1 percentage point to 16.5 percent from Sept 25.

That reduction "for small and medium-sized banks is a more meaningful liquidity easing, as the elevated level of RRR has been constraining their business operation", Frank FX Gong, chief economist at JPMorgan Securities (Asia-Pacific), said.

All 14 bank shares declined yesterday, with nine down to their daily limits, led by Bank of Beijing and Shenzhen Development Bank, both of which slid 10.01 percent.

Shares in Bank of China plummeted 9.17 percent to 3.17 yuan. Industrial and Commercial Bank of China slid 9.95 percent to 3.80 yuan.