Asia report: China tumbles amid mixed markets

China tumbled amid mixed results in Asia on Thursday, as concerns about market liquidity in the People's Republic increased ahead of the G20 Finance Ministers and Central Bank Governors Meeting in Shanghai.

The Shanghai Composite was down 6.41% by end of play, to 2,741.25. It was the worst percentage fall for the benchmark since 26 January, and took it to a 47% loss since the summer crash last year.

On the smaller boards, the tech-heavy Shenzhen Composite was down 7.34%, and the Nasdaq-style ChiNext had fallen 7.6%. More than 1,300 stocks in Shenzhen had fallen by the maximum daily allowance of 10%.

Analysts said the selloff was sudden, and reflected worries about tighter liquidity in the market and withdrawal of cash by investors who had been hammered by several months of serious volatility.

It was also inconvenient timing for China's politburo, which was preparing to host leaders of the world's largest economies for the two day meeting beginning on Friday. China was expected to address the widespread anxiety about the state of its economy and financial markets at the meeting.

China had been on investors' minds in recent times, with negativity on the Shanghai bourse frequently reverbating around the world. Thursday's selloff was described as sudden, and a surprise to many investors, who were hoping for good news from Beijing around plans to improve state-owned businesses.

A number of large cash injections by the People's Bank in recent weeks had helped Shanghai become more stable.

Liquidity was being squeezed in China's market this week, though, as around CNY 960bn (£105.5bn) reverse repurchase agreements - short-term loans from the People's Bank to the commercial banks - were due to mature.

The central bank withdrew CNY 455.5bn in short-term loans from the markets last week, the highest weekly net withdrawal in three years.

Jitters were also heightened after Beijing's banking regulator announced early on Thursday afternoon that it had banned Zhongrong Life Insurance from adding stock investment, as its solvency was at risk.

"Investors are increasingly wary of risks associated with funds from banks and insurance firms," said Sinolink analyst Li Lifeng.

Trading volumes in Shanghai and Shenxhen totalled CNY 664.8bn on Thursday, an increase from CNY 579.6bn on Wednesday, but still dramatically below the oft-seen CNY 2trn+ before the summer stock crash last year.

"Retail investors haven’t recovered from the stock market disaster early this year while institutions are incentivized to take profits once market recovers a bit,” said Guotai Junan Securities analyst Zhang Xin.

Renminbi weakened slightly against the US dollar, with the central bank guiding the onshore yuan to CNY 6.5318 per dollar. It is permitted to trade 2% either side of its loose peg.

Oil continued to trade down after close of business in Asia. Brent crude was last down 1.12% to $34.03 per barrel, and West Texas Interdediate was down 0.78% to $31.90.

Outside China, the Hang Seng Index took the lead of the mainland and fell 1.58%. In Japan, the Nikkei Stock Average gained 1.41%, South Korea's Kospi was up 0.3%, in stark defiance to previous days of Chinese selling, which had sparked selloffs across the region.

Australia's S&P/ASX 200 closed up 0.1% after a volatile day, with the country's big four banks helping to stabilise things. In New Zealand, the S&P/NZX 50 fell 0.1%. That came after Air New Zealand lost 1.9% despite a record pre-tax first half profit, as the airline warned of oil price uncertainties.

The Aussie dollar slipped further from the greenback, and was last 0.19% weaker at AUD 1.3923 per USD. The Kiwi was 0.14% stronger at NZD 1.4996.