Funds targeting China are the two largest fallers in London on Monday as Chinese stock markets dramatically fall out of bed. In overnight trading the Shanghai Stock Exchange Composite Index slumped 260.14 points to close to 3,115.09 as Chinese regulators clamp-down on margin trading. That 7.7% decline represents the index's biggest one-day slide since 2008.
Several UK funds focused on China are feeling the pinch on Monday with JP Morgan Chinese Investment Trust (JMC), down 5.3% to 177p, and the Fidelity China Special Situations (FCSS), 5.2% off at 133p, are particularly feeling the squeeze as three of the China's largest brokers are banned from opening new margin trading accounts.
Citic Securities (600030:SHA), Haitong Securities (600837:SHA) and Guotai Junan Securities (1788:HK) were hit by the ban after the regulator discovered that they rolled-over several expired margin loans instead of re-assessing the risk first.
The three-month ban follows a review of risky margin trading, where investors buy shares with money borrowed from their broker.
Investors should expect things to get even worse in China with gross domestic product (GDP) figures due for release on Tuesday (20 January) expected to miss expectations. Analysts widely predict growth of around 7.3% to 7.4%, down on the 7.7% growth rate in 2013 and 2012 and miles off the double-digit rates China has put up over much of the past 30 years. This would follow confirmation on Sunday (18 January) that average house selling prices across China dropped in December for the fourth consecutive month.