New Stock Rules Send China Shares to New 3-Year Lows

New rules that will limit the amount of fluctuation of the shares of struggling companies sent Chinese stocks to new lows Monday on panic selling of special treatment shares (ST shares).

The benchmark Shanghai Composite Index slipped 0.89%, or 18.85 points, to close at 2,109.91, the lowest level in over three years. The Shenzhen Component Index edged down 0.18%, or 16.07 points, to finish at 9,071.06.

Losers outnumbered gainers 820 to 131 in Shanghai, and 1,300 to 197 in Shenzhen.

Combined turnover on the two bourses stood at 86.74 billion yuan (13.77 billion U.S. dollars), compared to 94.23 billion yuan the previous trading day.

ST shares, which are stocks of companies that have posted two straight years of losses, fell across the board after the Shanghai bourse unveiled Friday a draft guideline to narrow price fluctuation limits for shares under delisting procedures.

The draft provides a cap on daily upward price movement of ST shares of 1% while keeping the downward price limit at 5% to reduce speculative profits from ST shares.

About 107 ST shares plunged by the 5% daily limit Monday, while nearly 40 non-ST shares plummeted by the 10% daily limit.

The proposed rules caused declines in shares of brokers and insurers. GF Securities Co. tumbled 7.61% to close at 13.6 yuan while China Life Insurance Co., China’s biggest life insurer, slid 2.7% to close at 18.39 yuan.

Banks and cement companies gained rose, however. Bank of Communications Co. rose 1.9% to close at 4.3 yuan. China’s top cement producer Jiangxi Wannianqing Cement Co. climbed 1.54% to finish at 11.86 yuan on expectations of increased infrastructure construction spending as part of the government’s economic stimulus efforts.