China’s stock markets crash after $3.5-bn loss

China's stock markets froze on Wednesday as nearly half of listed companies suspended trading in an effort to prop up the market after a $3.5 billion rout.

The nation's securities regulator has banned major shareholders, corporate executives and directors from selling stakes in listed companies for six months.

Selling in over 800 stocks halted automatically after the scrips reached their daily drop limit. Only 22 per cent of the China's listed stocks effectively traded on Wednesday, according to market estimates.

The China Securities Regulatory Commission directed investors with stakes exceeding 5 per cent to maintain their position. The rule is intended to guard capital-market stability amid an ''unreasonable plunge'' in share prices, the CSRC said.

Chinese stocks were hammered by foreign investors who offloaded shares worth a net 33.4 billion yuan ($5.4 billion) on the Shanghai market through Hong Kong's exchange link in the past three days.

China has allocated investment quotas of about $138 billion through its so-called QFII and RQFII programmes for foreign money managers, which include BlackRock Inc and HSBC Global Asset Management.

The benchmark Shanghai Composite Index closed down 5.9 per cent. The CSI 300 was also down, by 6.8 per cent.

Dozens of stocks in Hong Kong also voluntarily suspended trading, as the spill-over from China's market dragged down Hong Kong's Hang Seng Index, which tumbled as much as 8.6 per cent, its biggest intraday fall since the financial crisis, to close 5.8 per cent lower.

US stocks dropped, as a plunge in Chinese equities raised concerns about a broader impact on global economic growth. Raw-materials, banks and technology shares were among the worst performers.

The Standard & Poor's 500 Index fell 1.2 per cent to 2,057.42 at 11:18 a.m. in New York, near its average price for the past 200 days. The Dow Jones Industrial Average lost 188.57 points, or 1.1 per cent, to 17,588.34. The Nasdaq Composite Index declined 1.2 per cent.

Japanese stocks tumbled the most on Wednesday in their biggest drop in more than a year, as fears grew that a relentless sell-off in Chinese shares could ripple through its economy and hurt Japanese companies exposed to the Asian giant.

The Nikkei average fell 3.1 per cent, its biggest fall since March last year, to a seven-week low of 19,737.64 while the broader Topix shed 3.3 per cent, its largest decline in almost a year and a half.
 
Chinese shares saw more than 30 per cent off their values wiped off since mid-June. Investors have lost more about $3.4 trillion in equity value from the markets mid-June peak until the close on 7 July. (See: China stock market in turmoil as indices plunge)

Some global investors now fear the China's market turmoil will destabilise the real economy, posing a bigger risk than the crisis in Greece.

Foreign banks have lent over $1 trillion to Chinese public and private companies, mainly involving lenders in Hong Kong, UK, US and Japan. Foreign hedge fund investors have billions of dollars in exposure to China stocks through direct investment and exchange traded funds.

"Also, the ripple effect from the market correction has yet to show up," wrote Bank of America Merrill Lynch analysts in a note. "We expect slower growth, poorer corporate earnings, and a higher risk of a financial crisis."

Commodities markets reflected growing concerns about the broader health of the world's second largest economy, with copper prices falling to a six-year low, Shanghai nickel futures sliding by their 5 per cent daily limit, and oil falling toward $56 a barrel, near a three month-low.