Chinese stocks slumped, led by small-cap shares, amid concerns about tougher regulations and more initial public offerings following a high-level conference over the weekend attended by President Xi Jinping. The Shanghai Composite Index fell as much as 2.6 percent, its biggest loss since December, before paring declines to 1.4 percent at 2:17 p.m. The ChiNext gauge of mostly technology companies sank 4.6 percent, toward its lowest close since January 2015.
President Xi said the central bank will play a stronger role in defending against risks, and called for more work on safeguarding the financial system and modernizing its regulatory framework. The regulator approved nine IPOs for a second week in a row on Friday. Data released Monday showed China’s economy grew a faster-than-expected 6.9 percent in the second quarter from a year earlier.
The weekend meeting has got investors worried about tighter rules in the financial market, said Zhang Gang, Shanghai-based strategist at Central China Securities Holdings. “People are rushing to cut risks. ChiNext companies got hurt most from such risk-off sentiment, as many ChiNext firms are highly leveraged.”
Discussion at the conference on the need to increase direct financing may signal more initial share sale approvals, said Dai Ming, a Shanghai-based fund manager at Hengsheng Asset Management Co. A Xinhua News Agency statement said China should increase the proportion of direct financing in total credit. China’s securities regulator keeps a tight leash on IPOs, with controls on the number and timing of deals creating a backlog of companies waiting for a listing.
“The conference shows regulations are unlikely to ease,” Dai said. “The pace of IPOs has already picked up. So the market is worried if IPOs increase, then demand and supply in the market will be imbalanced briefly.” While the weekend conference damped risk appetite, the selloff may not last long as authorities may talk up stocks to ensure a stable market, according to Wang Chen, Shanghai-based fund manager with Xufunds Investment Management.
The gap between ChiNext and large-cap stocks widened further Monday, with the SSE 50 gauge of some of the nation’s biggest companies climbing as much as 1.5 percent.
Offshore Chinese stocks were largely immune to the selling, with a gauge of shares rising 0.6 percent in Hong Kong. China Merchants Port Holdings Co. climbed the most on the Hang Seng Index after saying it expects first-half profit to jump by more than 50 percent.
Beijing Wandong Medical Technology Co. and Jiangsu Yuyue Medical Equipment & Supply Co. tumbled as much as 10%, their daily limit, in mainland trading after saying Chairman Wu Guangming is under investigation by the nation’s securities regulator on suspicion of insider trading. Hithink RoyalFlush Information Network Co. slumped 10% in Shenzhen after warning of a profit decline in the first half and saying that shareholders plan to reduce stakes. Shenzhen Infogem Technologies Co. dropped 10% after saying its first-half net profit probably fell. China Merchants Port jumped 6.3% in Hong Kong. Zoomlion Heavy Industry Science and Technology Co. gained 3.3% after saying that it it expects to swing to a profit in the first half from a net loss a year earlier. Macau gaming companies led losses on the Hang Seng Index, with Sands China Ltd. and Galaxy Entertainment Group Ltd. retreating at least 2.1%. Macau casino operators may come under pressure after one of the city’s largest junket operators warned customers and key staff of “liquidity channel impairment, advised clients to withdraw money from affected bank accounts,” Daiwa Capital Markets Hong Kong Ltd. analyst Jamie Soo wrote in note