China stocks posted their biggest slump in nearly three weeks on Tuesday as investors dumped shares across the board amid fears of a fresh government crackdown on illegal margin financing and a new wave of IPOs. Over the weekend, China's securities regulator published draft rules that would cap a brokerage's margin financing business, and also launched a crackdown on illegal lending that funds share purchases.
Investors are also unnerved by the accelerated pace of new share issues. Twenty-five companies are launching initial public offerings this week, which analysts estimate will lock up about 6 trillion yuan ($966.7 billion) of capital. The companies will start taking subscriptions from Wednesday. "Obviously, regulators want to reduce the high leverage in the stock market, and that is having an impact on the market," said Gong Gang, a vice president at Huarong Securities.
"A correction at this level is very natural. If economic fundamentals cannot catch up with high stock valuations, there will be problems ahead." The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 3.0 percent, to 5,064.82, while the Shanghai Composite Index lost 3.4 percent, to 4,887.43 points. Stocks fell across the board. Among the sub-indexes that were the worst hit, the telecommunications index tumbled 6.7 percent, the infrastructure index slumped 5.8 percent and the materials index dropped 4.6 percent.
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