China's Stocks Extend $3 Trillion Rout

(Bloomberg) -- Supportive words from China’s securities regulator failed to slow the $3 trillion rout in the the nation’s stock market, as evidence of weakening domestic demand added to concern about the trade war with the U.S.

The Shanghai Composite Index fell 1.5 percent to its lowest close since November 2014. A gauge of consumer-related shares dropped the most after data showed purchases of passenger vehicles and online appliance sales slumped in September.

Liu Shiyu, chairman of the China Securities Regulatory Commission, said the country will deepen capital market reforms and press ahead with opening up after he met with investors. The country’s benchmark stock gauge has slumped 19 percent in the past six months as trade tensions increased and data signaled a slowdown in the economy, while the yuan has fallen more than 9 percent.

"The fundamental issues that haunt investors -- lower global risk appetite and a slowing Chinese economy -- remain," said Ken Chen, Shanghai-based analyst with KGI Securities Co. "The market will only recover if those concerns are resolved, and it’s going to take more than just verbal promises."

The Hang Seng Index fell 1.4 percent after three weeks of losses, while the Hang Seng China Enterprises Index dropped 1.5 percent. Tencent Holdings Ltd. slumped 1.9 percent.

U.S. Treasury Secretary Steven Mnuchin expressed concerns over the yuan’s weakness and called for a currency clause that would prevent competitive devaluations to be included in any trade talks with Japan. Separately, China’s ambassador to the U.S. said Beijing has no choice but to respond to what he described as a trade war started by the U.S.

As the equity rout worsened, reports emerged of government support to aid investor confidence:

• The government is encouraging insurers to invest in listed companies and help cut liquidity risks connected with the pledging of firms’ shares to secure loans, the China Securities Journal reported on Saturday, citing a senior official with the banking and insurance regulator
• The local government of Shenzhen has allocated tens of billions of yuan for efforts to reduce share-pledge risks and improve the liquidity of listed companies registered in the city, according to the Shanghai Securities News. More than 20 companies will be getting support in the first wave of measures, the report says

A subgauge of consumer discretionary stocks fell 2.1 percent, the most among the CSI 300 Index’s 10 industry groups. Great Wall Motor Co. slumped 9.4 percent to its lowest since 2012, while Qingdao Haier Co. tumbled 9.2 percent.

Purchases of passenger vehicles by dealerships plunged for a third straight month in September, the China Association of Automobile Manufacturers said Friday, adding that fourth-quarter comparisons from 2017 are challenging. Meantime, Bloomberg Intelligence said a decline in September online appliance sales indicated growing negative momentum for the sector, suggesting continued weakness for the rest of the year.

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Philip Glamann, David Watkins

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With assistance from Editorial Board