China stocks fall 7.4%, cap 2-week nose dive

China's stocks capped their steepest two-week plunge since December 1996 on Friday as investors who use borrowed money to buy equities cut holdings and concern grew that valuations were excessive.

The Shanghai composite index sank 7.4 percent Friday, taking its decline from its June 12 high to 19 percent, on the cusp of a bear market. Technology, industrial and material companies led declines in the two-week period, with Neusoft Corp., China Railway Construction Corp. and Hainan Mining Co. tumbling more than 30 percent.

Strategists at BlackRock Inc., Credit Suisse Group AG and Bank of America Corp. this month warned that the nation's equities were in a bubble. The median stock on mainland exchanges is valued at about 85 times earnings -- higher than when the market peaked in October 2007 and compared with a multiple of 20 for the U.S.

"We suspect there will be will be some more forced sales in the coming few days happening in the market," Steve Yang, China equity strategist at UBS Group AG in Shanghai, said Friday in a phone interview. "It's probably not a wise time to buy at the current stage."

The declines have turned China's stock market from the world's best performer to the worst. About 950 of the 1,105 members on the Shanghai Composite have declined since June 12. Before then, only two companies had fallen this year.

Indexes of technology shares and smaller companies, which led China's world-beating rally through mid-June, both entered bear markets Friday. The ChiNext index slid 25 percent in the two-week period, including a record 8.9 percent plunge Friday to meet the common definition of a 20 percent bear-market decline.

Outstanding margin debt on the Shanghai Stock Exchange dropped for a fourth day on Thursday to $229 billion, the longest stretch of declines since before the week-long lunar new year holidays in February.

"People at work talk about their stock investment all day, debating whether the market has exited a bull run and entered bear market," said Liu Chang, 28, who works in the tobacco industry in Wuxi, near Shanghai. "People who are not mentally strong enough have exited the market."

The Shanghai gauge has surged 106 percent over the past year as margin debt climbed to a record and investors speculated monetary stimulus will revive the weakest economic expansion in more than two decades.

The stocks favored most by margin traders at the height of China's boom in mid-June have since tumbled 26 percent. The benchmark index has had nine straight sessions of intraday swings exceeding 2 percent.

The losses Friday came after Morgan Stanley advised clients to refrain from purchasing mainland shares, saying the Shanghai composite's June 12 high likely marked the top of the rally.

"This is probably not a dip to buy," wrote Jonathan Garner, the head of Asia and emerging-market strategy at Morgan Stanley in Hong Kong.

Business on 06/27/2015

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