Stocks fall on ‘bulls kill bulls’ exit stampede

Chinese stocks suffered their worst day in almost two years on Friday, with the blue-chip led carnage dragging the markets into correction territory after steep falls overnight in US stocks.

The benchmark Shanghai Composite Index tumbled 4.0 percent while the blue-chip CSI300 index ended the day down 4.3 percent.

At one point, both were down more than 6 percent.

It was the biggest single-day dive for the two indexes since February 2016, when the fallout from a botched attempt to introduce a circuitbreaker mechanism after a market meltdown was still rattling investors.

“It’s bulls killing bulls,” said hedge fund manager Gu Weiyong about the exit stampede of stocks by once-bullish investors.

“If 10-year, risk-free rates keep climbing toward 5 percent, stocks with earnings of multiples of 30 or more will become increasingly expensive, so they’re getting dumped by institutional investors,” said Gu, Shanghai-based chief investment officer at Ucom Investment Co.

Chinese government bonds held steady. The price of the most-traded China 10-year treasury futures for March delivery was basically flat.

The yuan weakened against the dollar in thin volume, with the Chinese currency on track for its first weekly loss in nine weeks.

The SSE50, which tracks the 50 most representative blue-chips in Shanghai, fell 4.6 percent. It soared 25 percent overall in 2017.

China’s central bank said on Friday that it has released temporary liquidity worth almost 2 trillion yuan ($316.23 billion) to satisfy cash demand before the Lunar New Year holiday.

On Thursday, Reuters reported that China had approved licenses for an outbound investment scheme known as the Qualified Domestic Limited Partnership (QDLP) plan for the first time since late 2015.

The scheme would reopen a channel for Chinese money to invest abroad, potentially adding to liquidity concerns in Chinese markets.