Shares of PetroChina Co. Ltd (CN/601857) suffered their worst one-day trading losses in years on Monday, as China’s stock market crash begins to crimp even the country’s blue-chip stocks.
Given the world situation, PetroChina’s stock tumbled by a record 9.6%, following an 8.5% decline from the broader Shanghai Composite Index (CSI). Even shares of the company’s U.S. listed shares, PetroChina Company Limited ADR (NYSE/PTR) were also trading off 4.6%.
China’s stock market has been in free fall in recent weeks, but blue-chip companies like PetroChina have been spared from the worst of the crash. The stock has largely been artificially propped up by government funds, and not behaved according to fundamentals. The result has been extreme disconnect between where the company share price is trading and its real market equilibrium price.
Investors should be frightened by the prospect of Chinese authorities pulling the rug out from underneath equity prices, given the market’s perceived inability to support itself without government intervention. A recent International Monetary Fund (IMF) report suggests that while coordinated measures to soften major losses are needed, an end to the current crisis can only be reached if prices are allowed to correct themselves. Translation: Chinese stock prices could have a long way to fall.
More losses could be on the way for large-cap names like PetroChina if authorities are forced to dial back their plunge protection measures. The continued dissonance between state-supported stock values and a misfiring economy underlines the fact that China’s markets are still fragile, and perhaps even at the cusp of a bursting bubble.
Investors and analysts alike will be looking towards the Middle Kingdom’s official response to Monday’s unexpected market decline. Much will ride on the commentary and policy proposals which are expected to be outlined tomorrow, as well as the immediate actions taken.