Mainland stocks suffer worst week in years
Although mainland stock markets have moved into correction territory after suffering their worst week in years, the bull market is not yet over, analysts said.
The Shanghai Composite Index plunged 6.42 percent or 307.00 points to close at 4,478.36 points Friday, finishing the week down 13.32 percent.
The Shenzhen Component Index slumped 6.03 percent or 1,009.37 points to close Friday at 15,725.47 points, down 13.11 percent week-on-week.
It was the biggest weekly fall for both indexes since the global financial crisis in 2008, with nearly 1,000 stocks tumbling by the 10 percent daily limit Friday.
The CSI 300 Index of the biggest companies traded in Shanghai and Shenzhen fell 5.95 percent or 293.50 points to end at 4,637.05 points, a drop of 13.08 percent from the previous week.
ChiNext, the country's NASDAQ-style board for high-tech and emerging start-ups, dived 5.41 percent or 189.57 points to 3,314.98 points, losing 14.99 percent for the week and marking the index's sharpest weekly drop in history.
Last week also saw trading volume shrink day by day, with total turnover on the two bourses Friday reaching 1.29 trillion yuan ($207.82 billion), the lowest level since May 19.
Amid rising fears that the A-share market may run out of momentum, a panicked sell-off drove the Shanghai benchmark below the psychologically important marks of 5,000 points and 4,500 points successively over the past week.
Analysts generally believe that liquidity concern was the major trigger of the recent high volatility in the stock markets, which are highly leveraged.
First, equity market usually faces liquidity pressure toward the end of the first half as banks and companies need to stock up on cash to shine up their balance sheets.
Second, a wave of IPOs opened to investor subscriptions last week, which analysts estimate froze nearly 7 trillion yuan temporarily.
Among them, Guotai Junan Securities, China's third-largest brokerage by profit, aims to raise 30.1 billion yuan through its IPO in the Shanghai Stock Exchange, marking the country's biggest IPO since 2010, which alone locked up 2.35 trillion yuan over the past week.
Third, the China Securities Regulatory Commission reiterated recently its ban on the use of shadow financing for stock purchases, and local authorities have reportedly started investigating so-called umbrella trusts.
Recent media reports showed that China's shadow financing in equity investment may total about 500 billion yuan, which allow for more leverage than brokerages' margin financing and expose investors to higher risks.
Moreover, last week's plunge could be nothing more than a normal correction, and there may be more corrections in store in the short term, analysts said. So far this year, the Shanghai Composite Index has gained 38.45 percent, and the mainland markets have performed better than any others in the world.
Yet, in the medium term, the bull market will continue, Wu Chunhua, an analyst with Minsheng Securities, wrote in a note published Saturday in the China Securities Journal.
This recent bull run has been driven by expectations for reforms that will support share prices. With more reforms on the way, those expectations haven't changed.
