Chinese shares plunged another 8.3 per cent yesterday in their second biggest drop this decade, bringing to $340bn (£171bn) the market value lost since the Chinese government hiked a share trading tax last week to cool a bull run.
In an apparent attempt by authorities to restore confidence, editorials in official newspapers tried to reassure investors the market's medium- and long-term outlook was still positive, and that the tax hike was merely aimed at speculators.
But that failed to stop selling by many of the anxious and often inexperienced individual investors who had jumped into the market in recent months for what seemed like easy money.
"This is obviously panic selling, and the sentiment is quickly spreading across the market," Wang Jing, the deputy general manager at Everbright Securities, said. "But the fall is normal today, given the fact that the market has gone up so much. It won't be surprising if the index falls to about 3,000 points."
However, many analysts and fund managers said they did not believe the government, which has made a strong stock market central to its economic reforms, would permit an extended slide which could fuel social unrest or threaten China's rapid economic expansion.
The key Shanghai Composite Index has now lost 15.3 per cent from last Tuesday's record intra-day high.
Global stock markets, which were shaken by a heavy Chinese market sell-off in late February, appeared to be taking the latest slump in stride, although many Asian markets came off the day's highs as the rout in Shanghai worsened.
"I knew the market would go down, but I did not expect it would be this fast. After a small plunge, it should go up, but it is not going up," Madame Wang, a pensioner in her 50s, who put some of her savings into stocks during the bull run, said. "Next time I will remember - once the market falls, I will sell all my stocks."
Many fund managers and analysts in Asia said the index, which had risen 62 per cent this year after surging 130 per cent in 2006, had room to fall further in coming days as the excesses of the bull run were corrected.
But many also said they did not believe the market as a whole was going into freefall. Most worrying to analysts were deep falls in some of the blue chips favoured by institutional investors, since those stocks had stayed firm last week even as speculative shares tumbled.
The oil refiner Sinopec, which had risen 16 per cent over the final three days of the week, sank its 10 per cent daily limit to 13.65 yuan (89p). Industrial & Commercial Bank of China, the country's biggest bank, dropped 8.1 per cent to 4.99 yuan.
The Shanghai Composite Index ended the day at 3,670.401 points, its lowest since 25 April. Losing stocks overwhelmed gainers by 846 to 17, with about 466 shares plunging their 10 per cent daily limits. REUTERS