Car stocks are tipped to plunge today as a new cap on annual registrations of new cars in Guangzhou is expected to hit the mainland's already beleaguered car market.
All major car stocks fell in Shanghai yesterday. Hong Kong's stock market was closed for a public holiday.
Guangzhou Automobile and Great Wall Motors fell nearly 8 per cent, while Shanghai-based SAIC Motor dropped by nearly 8.5 per cent to close at 13.08 yuan (HK$16.00) as analysts said they expected the cap to be applied in Hangzhou, Shenzhen, Chengdu and Chongqing.
The Guangzhou municipal government announced on the weekend that the number of new car registrations would be capped at 120,000 for the coming year in an attempt to stem the city's worsening gridlock and air pollution. The news spells disaster for car dealers as it means that this year they will be allowed to sell only about half of the 226,000 units they sold last year.
'More small- and medium-sized car dealers could be squeezed out of business or acquired by bigger rivals in the coming months,' John Lu, a Shenzhen-based car analyst at Guosen Securities, said.
'There are 14 other mainland cities where car ownership exceeds a million. It's only a matter of time before the cap is extended to those places.'