Chinese stock slumps amid concerns about regulatory scrutiny


Devdiscourse News Desk | Updated: 08-03-2019 14:45 IST | Created: 08-03-2019 14:30 IST
Chinese stock slumps amid concerns about regulatory scrutiny
The losses for the two main China indexes were their biggest since Oct. 11, and came in heavy trading.
  • Country:
  • China

China stocks suffered their worst day in five months on Friday, plunging about 4 per cent as investors scrambled to take profit amid signs of tighter regulatory scrutiny after a recent market resurgence fuelled concerns of bubbles forming. The blue-chip CSI300 index tumbled 4.0 per cent, to 3,657.58 points, while the Shanghai Composite Index dropped 4.4 per cent to 2,969.86 points. Hong Kong's benchmark Hang Seng Index lost 1.9 per cent on Friday.

The losses for the two main China indexes were their biggest since Oct. 11, and came in heavy trading, with financial shares leading the decline. Shanghai-listed shares of major insurer People's Insurance Group of China (PICC) plummeted the maximum allowed 10 per cent, after Citic Securities issued a rare "sell" rating on the stock, citing frothy valuation.

The brokerage forecast that PICC, whose shares doubled in just two weeks and rose the 10 per cent limit in each of the previous five sessions, could slump by more than half over the next 12 months. Even after Friday's tumble, PICC is still up 115 per cent for the year. "What we're seeing is profit-taking after the recent surge. That's very natural," said Wen Xunneng, a Shanghai-based hedge fund manager.

But Wen remained upbeat on Chinese shares, saying "I don't see big room for correction. Plenty of opportunities to make money ahead." Some analysts had warned a correction was near as indexes had been in overbought territory for weeks, despite signs the economy was continuing to weaken.

On Friday, the sentiment was also dampened by poor February trade data and weak global markets. China's exports tumbled the most in three years in February while imports fell for a third straight month, pointing to a further slowdown in the economy despite a spate of support measures.

The China Securities Regulatory Commission (CSRC), at a news conference in Beijing, declined to comment on Friday's market performance but said it hopes more long-term overseas capital can invest in China's capital markets. Throughout Friday, investors dumped stocks amid signs of tighter regulatory oversight after the market rebounded over 20 per cent this year on loose credit conditions and hopes for a Sino-U.S. trade deal.

"I suspect regulators are sending the signals to cool the market a bit," said Stephen Huang, vice president of Shanghai See Truth Investment Management Co. "The market rise has been too hasty."

The official Securities Times said on Friday China's banking watchdog has punished two lenders for illegally channelling money into the stock market. Also, China's securities regulator said its Guangdong branch was closely monitoring grey-market margin financing and has banned brokerages from cooperating with shadow lenders. In addition to the "sell" rating on PICC, another was issued on Friday, by Huatai Securities, for Shanghai-traded shares of China Securities. The stock also fell 10 per cent.

Allen Wong, the strategist at China Investment Securities (HK), also attributed the market slide to sluggish overseas market, after the European central bank indicated economic uncertainty ahead. However, he said that the overall Chinese market is not yet in a bubble, despite frothy valuations in some sectors.

"China's easing policies would translate into economic improvements in the second half of the year, which will support the stock market." But if exports do not improve after February's bracing number, worries about China's economy are likely to increase. "Today's trade figures reinforce our view that China's trade recession has started to emerge," Raymond Yeung, Greater China chief economist at ANZ, wrote in a note. 

(With inputs from agencies.)

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