China’s stocks fell the most in almost seven weeks yesterday on record turnover as regulatory efforts to curb speculative trading overshadowed the central bank’s biggest cut to reserve requirements since 2008.
The Shanghai Stock Exchange Property Index advanced 2.1 percent after the central bank reduced lenders’ reserve-requirement ratio by 1 percentage point and data showed home prices fell in fewer cities this month.
The Shanghai Composite Index dropped 1.6 percent to 4,217.08 at the close, while Hong Kong’s Hang Seng China Enterprises Index had declined 3 percent at 3:15pm.
China’s securities regulator announced measures on Friday last week aimed at clamping down on the use of shadow financing for equity purchases and increasing the supply of shares available for short sellers.
“It must be institutionals deliberately shorting the market,” Hong Kong-based Geo Securities Ltd (智易東方證券) chief executive officer Francis Lun (藺常念) said. “That is to be expected — the market is overdue for a correction. There’s profit taking for those stocks that rose recently.”
The CSI 300 Index slid 1.6 percent. The Hang Seng Index retreated 2.2 percent.
The Shanghai Composite Index has jumped 77 percent in the past six months, the most among 93 benchmark indexes globally, fueled by record leverage and speculation that the Chinese government plans to lower borrowing costs to boost economic growth. The gauge trades at 21 times reported earnings, the highest since April 2010 and more than double last year’s low, according to data compiled by Bloomberg.
While China bulls may draw some comfort from the central bank’s reserve-ratio cut, the selloff shows how vulnerable the Shanghai Composite Index is to a pullback after going 452 days without a 10 percent drop from a recent high.
“Chinese shares have risen too fast and it’s no surprise to see huge volatility in the market going forward,” Core Pacific-Yamaichi Hong Kong-based head of research Castor Pang (彭偉新) said.
The Shanghai index’s trading volumes were 74 percent above the 30-day average, while its 100-day volatility jumped to a five-year high, according to data compiled by Bloomberg. The combined turnover on the Shanghai and Shenzhen stock exchanges climbed to a record 1.6 trillion yuan (US$257.99 billion).
In Shanghai, a gauge of financials slid 4.3 percent, the most among 10 industry groups on the CSI 300. Soochow Securities Co (東吳證券) plunged 9.5 percent, while Shanxi Securities Co (山西證券) slumped the most since Jan. 19.
Regulators banned the margin-trading businesses of brokerages from using so-called umbrella trusts and allowed fund managers to lend shares to short sellers, statements on Friday showed.
Investors have used umbrella trusts, which allow for more leverage than brokerage financing, to ramp up wagers on Chinese stocks after monetary stimulus measures sparked a world-beating rally in the nation’s benchmark equity gauge. Permitting mutual funds to lend their holdings to short sellers would make it easier for bearish traders to bet on a retreat.
Shanghai traders have borrowed a record 1.2 trillion yuan to buy equities via margin trades, while new investors have opened an unprecedented number of stock accounts this year.
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