It’s days like Monday that reassure Tony Hann he was right to avoid stocks in mainland China.
The severity of an 8.5 percent drop in the Shanghai Composite Index is bad enough, but what irks him the most is not knowing why it tumbled so much. In a market where unprecedented intervention has made government money one of the biggest drivers of share prices, authorities aren’t transparent enough for investors to make informed decisions, said Hann, the head of emerging markets at Blackfriars Asset Management Ltd.
Monday’s plunge was all the more surprising because it followed a government rescue package that had helped drive a 16 percent rally since July 8. That support appeared to vanish without warning, leaving analysts guessing whether authorities shifted their policy stance or just got overwhelmed by a flood of sell orders. Whatever the answer, foreign money managers didn’t stick around to find out: they sold holdings of Shanghai shares for the 13th time in 16 days.
Investors “are concerned and lost,” said Alex Wong, a Hong Kong-based asset-management director at Ample Capital Ltd., which oversees about $155 million. “China’s market is distorted, so you can’t sell short very confidently and you can’t buy up very confidently either.”
Signs of government purchases that were prevalent in recent weeks went missing in Monday’s rout. PetroChina Co., long considered a favorite holding of state-linked rescue funds, sank 9.6 percent. The government-run oil producer had been one of the biggest sources of support for the Shanghai Composite on big down days in late June and early July.
The China 50 ETF, another target of government funds, dropped 9.1 percent. The Shanghai Composite’s one-day selloff was the broadest since at least 1997, with 959 more shares in the index falling than those that gained.
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