SHARES in both Shanghai and Shenzhen tumbled more than five percent yesterday as investors dumped stocks amid liquidity concerns sparked by the huge share sale plan of Ping An Insurance.
Shares in Shanghai plunged 5.14 percent yesterday, the biggest single daily drop in six months, following a decrease of 5.54 percent last week. Finance, blue chips, petrochemical and property led the dive.
The high value of the yuan, the fall in neighboring share markets and the tightening of liquidity just before the Spring Festival all helped the share plunge which could continue if investors' confidence is shaken, dealers said.
The local index, which tracks yuan-denominated A shares and hard-currency B shares, sank 5.14 percent to 4,911.44, the biggest one day drop since July 5.
Losers in the Shanghai market outnumbered winners 703 to 86 and only 61 stocks were unchanged.
The volume of the stock traded was 132.1 billion yuan (US$17.9 billion) yesterday compared with 119.7 million yuan in the previous session.
The Shenzhen Composite Index, which covers the smaller stock market on China's mainland, fell 4.62 percent, or 70.09 points, to 1,448.18.
Ping An's largest post-IPO capital raising and the planned A share IPO of China Coal Energy Ltd put pressure on liquidity in the secondary market.
Ping An Insurance, China's second-largest life insurer, said Sunday it plans to issue 1.2 billion A shares and no more than 41.2 billion yuan worth of convertible bonds. China Coal Energy, the nation's second-largest coal producer, planned to issue no more than 1.525 billion A shares on the Shanghai Stock Exchange.
The sell-off also came on the back of concerns that the worsening US subprime crisis could affect the once isolated Chinese mainland equity market through other Asian markets.
"There was panic selling not only among individuals but with institutional investors," said Chen Qun, an analyst at West China Securities. "The blue chips dropped dramatically and that shows investors' confidence is affected."
Ping An Insurance plunged by the daily limit of 10 percent to 88.39 yuan. Its rivals China Life was down 8.76 percent to 48.22 yuan and China Pacific Insurance was down 8.82 percent to 40.96 yuan.
PetroChina, which accounts for about 25 percent of the Shanghai Composite Index, fell 5.53 percent to 27.48 yuan, the lowest closing since its record high of 48.62 yuan on its debut on November 5.
China Vanke, the nation's biggest developer, lost 6.61 percent to close at 26 yuan.
Bank of China, the country's third biggest and the largest investor in subprime-related holdings among Asian banks, shed 4.14 percent to 6.25 yuan.
The sharp fall in Chinese stocks echoed heavy losses in other Asian markets as the US government's stimulus plan failed to allay investors' fears over a US recession.