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Chinese Stocks Implode As Investors Scramble For Cash

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Steve Birr Vice Reporter
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Investors in China panicked Thursday, prompting stocks to plummet over 6 percent due to fears of liquidity, as China prepares to host economic leaders from G-20 nations in Shanghai Friday.

The Shanghai Composite index posted its largest one-day loss since Jan. 26, falling 6.4 percent. The benchmark stock index in China has been ravaged over the last six months, losing roughly 47 percent of its value since the summer, reports Market Watch.

The selling frenzy took off after the lending rate between commercial banks in China rose sharply to its highest point since late January, catching investors off guard. Turmoil early in the year had been slightly stabilized following action from the People’s Bank of China and hope of financial reforms. China’s central bank has been injecting money into the market, helping its brief recovery. But last week, the central bank took $455.5 billion worth of short-term loans out of the system, increasing fears over the availability of cash.

“Retail investors haven’t recovered from the stock market disaster early this year while institutions are incentivized to take profits once market recovers a bit,” Zhang Xin, an analyst at Guotai Junan Securities told Market Watch.

Overall 1,300 stocks across the Shanghai Composite index and Shenzhen Composite index — China’s main market gauges — fell 10 percent, which is the maximum single day stock decline allowed by Chinese authorities. For every one stock that rose, roughly 70 stocks fell in value, reports Bloomberg.

“The market is in a quite fragile state when everyone scrambles for an exit,” Central China Securities strategist Zhang Gang told Bloomberg. “None of the news in the market is sufficient enough to trigger such a slump.”

Global markets proved resilient to Thursday’s chaos in China, with European and Japanese indices all posting gains. The Nikkei in Japan closed up 1.41 percent and U.K.’s FTSE 100 is up 2.68 percent in afternoon trading. U.S. stocks opened Thursday trading in the green as well. Oil prices rebounded slightly higher Wednesday but are declining again Thursday on news that U.S. crude oil inventories rose again last week, reminding investors of the continued threat oversupply poses to economic growth.

“There’s still a big correlation with oil prices because of the concerns of the knock-on effects on the banking system,” Patrick Spencer, equities vice chairman at London based Robert W. Baird & Co. told Bloomberg. “The bank selloff is overdone. It’s still like catching a falling knife, the performance is so fickle at the moment. People are nervous, they expect a recession, but I just don’t see that coming.”

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