By V. Phani Kumar, MarketWatch
HONG KONG (MarketWatch) — Chinese stocks plummeted to lead Asian equities lower Monday, with concerns that Beijing may be reluctant to ease a liquidity crunch in the Shanghai interbank money markets slamming banks particularly hard.
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The Shanghai Composite /zigman2/quotes/210598127/delayed CN:SHCOMP -0.59% suffered its worst one-day percentage loss in nearly four years, plunging 5.3% to end at 1,963.24 — its first close below the psychologically-important 2,000-point level since December. The performance is its worst since a 6.7% drop in August 2009. The Shenzhen Composite Index dived 6.1% to 881.87.
The performance also led to heavy losses elsewhere in the region, with the Hang Seng Index /zigman2/quotes/210598030/delayed HK:HSI -0.24% sliding 2.2% in Hong Kong to decline for a fifth straight trading day, while Australia’s S&P/ASX 200 /zigman2/quotes/210598100/delayed AU:XJO -0.75% slid 1.5%.
Short-term interbank interest rates in Shanghai, which hit record highs on Thursday , further extended their drop from those levels but stayed above the 6% level Monday, according to Dow Jones Newswires.
“The worst of the liquidity crunch may now be behind us, but we believe interbank rates will stay at elevated levels until at least the second week of July,” said Standard Chartered China economist Stephen Green.
“The longer this policy lasts, the more concerns about banking-sector stability will be raised. It may also cause slower credit growth in the second half,” he said.
/zigman2/quotes/210598065/realtime DJIA 35,058.52, -85.79, -0.24%
Moody’s Investors Service Vice President Bin Hu also echoed similar concerns. Hu said the ratings agency interprets the tight liquidity conditions as a conscious decision by the Chinese central bank to curb credit growth and that Moody’s regards such moves as credit-positive for the health of the overall banking system. (Commentary: China’s alarming credit crunch)
“However, the method the [People’s Bank of China] chose to keep the banking system short of liquidity entails risks that could have credit-negative implications, particularly for small and midsize banks that are more dependent on the interbank market,” Hu said.
Small- and medium-sized Chinese lenders suffered the most. Shares of China Minsheng Banking Corp. /zigman2/quotes/203910009/delayed CN:600016 +0.49% /zigman2/quotes/200749234/composite CMAKY -2.93% plunged by the day’s 10% limit, China Merchants Bank Co. /zigman2/quotes/210188047/delayed CN:600036 +3.55% /zigman2/quotes/208876947/composite CIHKY -2.15% skidded 6.7% and Shanghai Pudong Development Bank Co. /zigman2/quotes/204296742/delayed CN:600000 +1.09% slumped 9.2%.
In Shenzhen, Ping An Bank Co. /zigman2/quotes/206600939/delayed CN:000001 +0.39% dropped by the 10% daily limit, and Bank of Ningbo Co. /zigman2/quotes/208961061/delayed CN:002142 +2.92% shed 9.9%, while the Hong Kong-listed shares of China Minsheng /zigman2/quotes/208095167/delayed HK:1988 -0.61% and China Merchants Bank /zigman2/quotes/209899244/delayed HK:3968 +1.29% lost 8% and 4.6%, respectively.
Worries about high interbank rates have surfaced at a time when several brokerages have downgraded their outlook for the Chinese economy. Goldman Sachs on Monday cut China’s economic growth forecast to 7.4% for 2013 and to 7.7% for 2014.
Elsewhere in the region, South Korea’s Kospi /zigman2/quotes/210598069/delayed KR:180721 -0.16% and Japan’s Nikkei Stock Average /zigman2/quotes/210597971/delayed JP:NIK -1.47% dropped 1.3% each, with the latter unable to hang on to solid gains recorded earlier in the day.
The performance followed Wall Street’s losses last week after the Federal Reserve signaled it may downscale, or “taper,” its bond purchases later this year.