[I-bank focus]No financial crisis seen from market plunge

    China's A-shares yesterday dropped sharply by 8.5%. The movement was the biggest fall since 23 May 1995 in percentage terms.
  ANZ Research said the sharp falling of share price has been propelled by a rapid deleveraging process triggered by tightening of margin financing pledged mainly by securities brokers and to some extent informal credits created through unregulated trading platforms.
  Since the securities regulator is still tightening up such activities, the stock market will continue to be very volatile despite the high-profile rescue package launched by the government in the past few weeks, it added.
  However, ANZ does not regard the price movement in equity market a financial crisis. The banking sector dominants China's financial sector but the spill-over effects to the banking sector remains containable. Our initial assessment is that the risks are still confined within the securities market.
  According to the PBoC data, equity investment as a stated purpose of loan pledges by commercial banks represents about 6% of banks' balance sheet. Mark-to-market loss due to 30% drop in share prices should be limited within 2% of total balance sheet.
  That said, ANZ believes the stock market volatility does present some downside risks to China's growth outlook. In 1H, the vibrant financial market contributed about 23% or 1.6ppts of the 7% GDP growth rate, given the 17% y/y gain of value-added by the financial sector.
  Depressing stock prices would also affect households' spending appetite for durable goods. If the policymakers fail to shore up investor confidence on time and financial market activities become depress in 2H, China will unlikely attain 7% growth.
  ANZ maintained its 2015 GDP forecast of 6.8%, but said that the downside risk to its forecast has risen.