UPDATE 1-China stocks plunge over 7 pct, divided over outlook

viernes 26 de junio de 2015 06:07 GYT

By Samuel Shen and Kazunori Takada

SHANGHAI, June 26 (Reuters) - Chinese stocks plunged over 7 percent on Friday, with one key index recording its biggest fall since 2008, hit by tight liquidity conditions ahead of the quarter-end and uncertainty over the central bank's easing policy.

The market is now down over 20 percent from seven-year highs hit two weeks ago, with selling accelerated by investors rushing to unwind positions built on borrowed money, but investors are divided over whether the boom has come to a bust.

Jiang Chao, strategist at Haitong Securities, said that based on meetings with fund managers over the past week, he believed that institutions were "collectively at a loss" over the direction of the stock market.

"Many people said they're keen to lock in profit, rather than make profit in the second half, because they have made enough in the first half."

Any crash would have major implications on Beijing's push to open up its financial markets, most imminently a plan to link the Hong Kong exchange with China's smaller Shenzhen bourse.

It could also have implications for the broader economy, given the high level of market participation by retail investors, though Beijing has weapons in its arsenal if it fears too big a knock-on effect.

It has previously used state funds to pick up shares on dips, eased the pace of initial public offerings and used editorials in state media to boost confidence.

"The foundation of the bull market has not materially changed," Bosera Asset Management Co said in an emailed comment on the market tumble.   Continuación...