The equity markets in the United States and other countries suffered significant declines today amid investors’ selloff. One of the reasons behind the decline of the broader stock market was the tightening of trading rules in China.
Chinese regulators clamped down the use of shadow financing to purchase equities and increased the supply of shares available to short-sellers. The margin trading businesses of brokerages were prohibited from taking part in umbrella trusts.
Investors used umbrella trusts to have more leverage and increased their bets on Chinese equities after a monetary stimulus that led to a huge rally of China’s benchmark equity gauge. The Shanghai Composite Index closed a seven-year high on Friday.
Hao Hong, chief strategist at Bocom International Holdings, commented that the recent surge “has been a little too fast for the regulator’s comfort.” He added, “The market should consolidate, as it is overbought and part of the market is overvalued.”
On the other hand, Matt Maley, an equity strategist at Miller Tabak & Co. said, “The China news shows there was a lot of leverage in that market, and there’s a lot of leverage in ours, it shows how vulnerable the market can be when that’s the case.”
The concerns regarding the ability of Greece to pay its debt also contributed to slide of the stock markets, according to Donald Ellenberger, a senior portfolio manager at Federated Investors.
In addition, Ellenberger said, “Investors have piled into German bunds, and credit spreads widened. But it was news from China’s regulators that triggered selling, as a lot of investors were sitting on gains after a run-up in equity markets.”
- Dow Jones Industrial Average (DJIA) – 17,828.24 (-1.53%)
- S&P 500- 2,081.31 (-1.12%)
- NASDAQ- 4,932.77 (-1.50%)
- Russell 2000- 1,253.14 (-1.55%)
- EURO STOXX 50 Price EUR- 3,674.05 (-2.07%)
- FTSE 100 Index- 6,994.63 (-0.93%)
- Deutsche Borse AG German Stock Index DAX- 11,688.70 (-2.58%)
- Nikkei 225- 19,652.88 (-1.17%)
- Hong Kong Hang Seng Index- 27,653.12 (-0.31%)
- Shanghai Shenzhen CSI 300 Index- 4,596.14 (+1.83%)
Stocks in Focus
The stock price of American Express declined more than 4% to $77.32 per share after reporting its quarterly financial results. The credit card company reported$1.48 in earnings per share and $1.4 billion in net interest income (NII). Its total revenues of $7.95 billion missed the $8.21 billion expected by analysts.
Advanced Micro Devices plummeted more than 10% to $2.58 per share. Its stock price was negatively impacted by company’s statement that it is uncertain whether the second-half will be “substantially better” than the first-half of this year. Analysts Canaccord Genuity reduced their price target for the stock to $2 per share and reiterated their Hold rating.
The shares of Mattel climbed almost 6% to $16.75 per share after reporting an improvement in the sales of its Barbie and Fisher-Price brands. The toy maker posted quarterly losses of $0.08 per shares. Analysts expected losses of $0.09 per share.