CHINA’S stocks plunged more than 7 percent Friday, with one key index recording its biggest fall since 2008, hit by tight liquidity conditions ahead of the quarter-end and uncertainty over the central bank’s easing policy.

    The market is now down more than 20 percent from seven-year highs hit two weeks ago, with selling accelerated by investors rushing to unwind positions built on borrowed money, but investors are divided over whether the boom has come to a bust.

    Jiang Chao, strategist at Haitong Securities, said that based on meetings with fund managers over the past week, he believed that institutions were “collectively at a loss” over the direction of the stock market.

    “Many people said they’re keen to lock in profit, rather than make profit in the second half, because they have made enough in the first half.”

    Any crash would have major implications on China’s push to open up its financial markets, most imminently a plan to link the Hong Kong exchange with the Shenzhen bourse.

    It could also have implications for the broader economy, given the high level of market participation by retail investors, though the government has weapons in its arsenal if it fears too big a knock-on effect.

    It has previously used State funds to pick up shares on dips, eased the pace of initial public offerings and used editorials in domestic media to boost confidence.

    “The foundation of the bull market has not materially changed,” said Bosera Asset Management Co.

    A slew of initial public offerings has also bloated the supply of stocks, which fell across the board Friday.

    About 2,000 of the roughly 2,800 listed companies in Shanghai and Shenzhen slumped by their 10 percent daily limit.

    At the close, the key CSI300 index was down 7.9 percent, its biggest one-day percentage fall since June 2008, while the Shanghai Composite Index tumbled 7.4 percent.

    Traders said the selling accelerated as it triggered margin calls, which forced investors to bail out of stocks bought on borrowed cash.

    “Many of the investors I know bought stocks using margin financing, with little cash left in their accounts,” said Zhang Chen, analyst at Shanghai-based hedge fund Hongyi Investment.

    “Recent slumps left them with no choice but to sell on margin calls,” Zheng said. (SD-Agencies)