Shanghai - China stocks suffered their biggest one-day percentage drop since the global financial crisis, dragged down by record tumbles for banks as authorities battled market speculation that fuelled a late 2014 spurt in share prices.
The two main indexes both fell 7.7 percent, their biggest losses since June 2008, and the plunge wiped out around $315 billion of market value from the Shanghai stock exchange, the country's biggest.
The CSI300 index of the largest listed companies in Shanghai and Shenzhen ended at 3,355.16 points and the Shanghai Composite Index at 3,116.35.
The China market was one of the world's best performers in 2014, thanks to surge of more than 40 percent in the last quarter. That was led by brokerages, which tumbled on Monday as authorities took steps to slash speculative trading.
China's securities regulator punished industry heavyweights for illegal operations in their margin trading. Banks were hit after the banking regulator issued draft rules to tighten supervision of entrusted loans, a kind of shadow banking product.
Monday's fall came a day before China reports fourth-quarter and full-year economic growth data. It is expected to report an annual 7.2 percent pace, which would be the lowest in 24 years.
Cao Xuefeng, head of research at Huaxi Securities in Chengdu, said the GDP data could hurt the market as “when sentiment is low, data announcements can have a very negative impact”.
DOWNWARD TREND TO STAY?
He said the downward trend for Chinese share prices “is unlikely to change before Chinese New Year,” which comes in mid-February. “It's possible the market will drop another 10-15 percent within the next month,” he predicted.
Du Changchun, an analyst at Northeast Securities in Shanghai, said the regulation on “entrusted loans” and the margin-trading penalties “hinder capital inflows, which have been the most significant reason behind the market's recent rally.”
The banking sub-index plummeted by a record 10 percent, while the broader financial sub-index sank a record 9.6 percent. Chinese shares are allowed to rise or fall a maximum of 10 percent in a day.
All China CSI300 stock index futures were down at least 10 percent, except the September index which dove 11.7 percent.
Plunges in mainland stocks impacted Hong Kong shares, which had their worst day in nearly five weeks.
The Hang Seng index fell 1.5 percent, to 23,738.49 points, while the China Enterprises Index lost 5.0 percent, its biggest drop in more than three years, to 11,475.85 points.
EUROPEAN SHARES HIT SEVEN-YEAR HIGH
European shares hit a seven-year high on Monday, lifted by growing expectations that the European Central Bank is about to embark on a bond-buying programme to support the euro zone economy.
Shares in Swiss blue chips paced the gains, with Swiss benchmark index SMI up 3.2 percent, bouncing back from last week's sharp correction after the central bank's shock decision to scrap its cap on the Swiss franc, a move that sent the currency soaring and will hurt the country's exporters.
Julius Baer featured among the top gainers, up 5.3 percent, after the private bank said it did not suffer any losses soon after the Swiss National Bank's decision to abandon a three-year-old cap on the franc.
Shares in a number of Italian banks surged, lifted by press reports about a planned government reform that could abolish a rule granting one vote to each shareholder regardless of the size of their stake.
Banca Popolare dell'Emilia Romagna was up 8.3 percent, Banco Popolare up 8.9 percent and UBI up 6.2 percent.
At 0845 GMT, the FTSEurofirst 300 index of top European shares was up 0.4 percent at 1,413.07 points, a level not seen since early 2008.
Germany's DAX index was up 0.7 percent, trading at a record high. The German bourse is often seen as one of the safest in Europe and tends to benefit the most at first from investment inflows.
Expectations the ECB will start printing money to buy government bonds in a quantitative easing policy aimed at reviving inflation have fuelled a stock rally, helping European stock indexes outperform Wall Street this month.
The ECB bank is set to meet on Thursday.
“Quantitative easing is in the pipeline,” said Jean-Louis Cussac, head of the Paris-based Perceval Finance.
“There's a positive bias on the market overall ahead of the ECB meeting, but the market is very volatile and there are big question marks on the upside potential going forward.”
Greek shares bucked the trend, with Athens's ATG index down 0.2 percent on concerns over the country's political situation. A survey showed on Saturday that Greece's anti-bailout Syriza party is solidifying its opinion poll lead over the ruling conservatives eight days before an election.
Reuters