smaller Larger By DANIEL INMAN
Chinese stocks were in free fall on Monday as fear over a domestic credit squeeze pushed Shanghai down 5.3%, the most since August 2009.
The selloff was sparked by further signals over the weekend that China's cash crunch would persist, after a commentary by state-run Xinhua suggested that the government won't be taking any action soon. In addition, the People's Bank of China made no direct reference to the recent surge in borrowing costs for banks, at the same time saying that it will maintain prudent monetary policy.
"A lack of policy stance from the central bank during the cash crunch is the main reason that stock markets keep falling, so investors are waiting eagerly for any direction cues," said Wu Bangdong, analyst at Changjiang Securities.
China's medium sized banks continued to suffer heavy losses, despite a drop in the interbank lending rate, as the market was worried about their large exposure to wealth management products. Fitch Ratings estimates that more than 1.5 trillion yuan worth of these products will mature in the last 10 days of June.
China Minsheng Banking Corp. 600016.SH -9.95%plunged 9.9% in Shanghai and Industrial Bank 601166.SH -9.98%skidded 9.9%.