Stocks dive on housing fears

08:17, May 18, 2010      

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Investors stand in front of boards showing stock prices at a trading house in Shanghai on Monday. Chinese shares hit their lowest level in more than a year, tumbling 5.07 percent amid concerns that Beijing may step up tightening measures in the real estate sector. PHILIPPE LOPEZ / Agence France-Presse

Chinese equities plunged on Monday in what analysts described was panic selling as investors dumped shares in the domestic A-share market.

The plunge is believed to reflect investor anxiety, among mixed reports, on how the government's new urban housing policies cascade into other sectors.

The benchmark Shanghai Composite Index suffered the biggest loss in a year, falling 5.07 percent from 2696.63 points to close at 2559.93 points. More than 200 stocks fell to their daily trading limit of 10 percent.

Leading the decline was the real estate sector, with China Vanke Co retreating 5.34 percent to close at 6.92 yuan ($1.01). Financial services, steel and auto stocks were also among the major losers, slumping more than 6 percent.

Only gold-related shares defied the downward trend as investors sought a save haven.

Analysts said the sharp decline was triggered by investors' fears that recent government intervention in the real estate market would slow industrial growth. A report said while housing transactions have slowed to a crawl, prices for many housing units remained as high as before.

"The tough measures have not achieved the desired effect of bringing down housing prices. But they did lead to market stagnation with buyers adopting a wait-and-see attitude," said Dong Xian'an, chief economist at Industrial Securities.

"In any market, if there is neither transactions nor investment, there will be a slowdown, or maybe no growth," he said.

So investors are uncertain and about out how Beijing's macro-economic policies will pan out, or whether harsher measures are in store to contain inflation and avert asset bubbles.

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