SHANGHAI — Chinese equities plunged the most in six years after regulatory efforts to rein in record margin lending sparked concern that speculative traders will pull back from the world’s best-performing stock market.

The two main indexes both fell 7.7 per cent, their biggest losses since June 2008, and the plunge wiped out around US$315 billion (S$419 billion) of market value from the Shanghai stock exchange.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen ended at 3,355.16 points and the Shanghai Composite Index at 3,116.35. The dive also rubbed off on Hong Kong, where the Hang Seng Index was off 1.5 per cent at 23,738.49.

Brokerage shares tumbled after the securities regulator punished industry heavyweights for illegal operations in their margin trading business, while banks were hit after the banking regulator issued draft rules to tighten supervision of entrusted loans, a kind of shadow banking product.

About nine stocks dropped for each that rose on the Shanghai gauge, with more than 100 companies retreating by the 10 per cent daily limit.

Citic Securities and Haitong Securities, the nation’s two biggest listed securities firms, fell by the maximum allowed, as did Ping An Insurance Group, China Minsheng Banking and Bank of China. Other large-cap stocks also slumped, with PetroChina falling 9.2 per cent and Agricultural Bank of China dropping 9.9 per cent.

Yesterday’s fall came a day before China is expected to report today that its full-year economic growth slowed to 7.2 per cent, the lowest in 24 years.

Mr Cao Xuefeng, head of research at Huaxi Securities in Chengdu, said the gross domestic product data could hurt the market as “when sentiment is low, data announcements can have a very negative impact”.

He said the downward trend for Chinese share prices “is unlikely to change before Chinese New Year”.

“It’s possible the market will drop another 10 to 15 per cent within the next month,” he predicted.

The regulatory commission on Friday said it had suspended three brokerages — Citic Securities, Haitong Securities and Guotai Junan Securities — from lending money and stocks to new clients for three months after an investigation revealed the firms had violated rules. On the same day, the China Banking Regulatory Commission banned banks from lending to companies that borrow to invest in equities, bonds, futures and derivatives.

The moves have raised concern that policymakers are trying to curb a surge in stock purchases using borrowed money after outstanding margin loans surged to 1.08 trillion yuan (S$231 billion) as of Jan 13 from about 400 billion yuan at the end of June.

The Shanghai Composite Index jumped 67 per cent in the past 12 months through last week on record volumes as individual investors piled into the market.

“The China Securities Regulatory Commission worries that some brokers have not been fully compliant in their margin finance operations, which may lead to substantial losses of their clients, and brokers themselves, in case of a market correction,” said Mr Leon Qi, an analyst at Daiwa Capital Markets. “Hence it ‘engineered’ a market correction.” Agencies