China’s main share index closed down by more than 5 per cent after several major brokerage firms announced they were under investigation.
The Shanghai Composite index ended the day 5.5 per cent lower at 3,436.3 points – marking its biggest drop since August.
Late on Thursday, it was announced that China’s securities regulator was investigating the country’s largest brokerage, Citic Securities.
The firm is being probed over the possible breaking of market rules.
Rival brokerage Guosen Securities is also being investigated, and shares in both Citic and Guosen fell by 10 per cent, the maximum allowed in one day.
In addition, trading in China Haitong Securities was halted earlier on Friday as some reports indicated that the firm was also under investigation.
Chen Xingyu, an analyst at Phillip Securities, told the AFP news agency: “The biggest reason for such a sudden drop today is because of regulator’s investigation of the top brokers. It has triggered a broader sell-off.”
Market sentiment was already wavering ahead of a new batch of initial public offerings set to make their debut next week.
Hong Kong’s Hang Seng index finished down 1.9 per cent at 22,068.32. The index fell 3 per cent over the week, its worst weekly performance for two months.
