China stocks drop most in two months, volumes tumble amid liquidity squeeze

Interbank borrowing rate rises for 15th consecutive day as PBOC drains funds from the money market

PUBLISHED : Wednesday, 30 November, 2016, 9:22am
UPDATED : Wednesday, 30 November, 2016, 7:12pm

Chinese stocks dropped the most in two months on Wednesday, with trading volumes shrinking sharply, as concerns over a liquidity squeeze lingered after the People’s Bank of China withdrew cash from the money market to curb lending.

However, the index still capped the biggest monthly gain since March.

Mainland China’s benchmark Shanghai Composite Index fell 1 per cent or 32.89 points to close at 3,250.03, the biggest daily percentage decline since late September.

Still, the index snagged a 4.8 per cent gain for November.

Other major stock indices mostly ended lower, with the large-cap CSI300 index down 0.7 per cent to 3,538, the Shenzhen Component Index off 0.2 per cent to 11,012.19 and the Shenzhen Composite Index slipping 0.2 per cent to 2,106.91. Nonetheless, the startup board index ChiNext rose 1.1 per cent to 2,183.05.

Trading volumes deteriorated, as combined turnover for Shanghai and Shenzhen markets declined 18 per cent to 563.5 billion yuan from Tuesday’s 690 billion yuan.

The Shanghai Interbank Offered Rate (SHIBOR), a measure of interbank borrowing costs, rose for the 15th straight session on Wednesday, after data showed the People’s Bank of China only injected a mere 15 billion yuan in November through open market operations, compared with October’s 441 billion yuan.

“The interbank lending market is facing a liquidity squeeze, as the central bank keeps withdrawing cash from the financial system,” said Ji Changqing, an analyst for Zhongcai Futures.

“Credit conditions appear tight in the fourth quarter as the government tries to tackle the debt problem by deleveraging and has restricted property-related lending since October,” Ji said.

“Adding to the pain for the market, it’s also a traditional season of cash shortage from November to the end of the year.”

In Shanghai, the banking sector fell broadly, with China Citic Bank falling 3 per cent to 6.71 yuan, ICBC and China Construction Bank both down 1.1 per cent to 4.52 yuan and 5.57 yuan respectively, and China Merchants Bank lower by 1 per cent to 18.56 yuan.

However, China United Network Communications (China Unicom) soared 8.3 per cent to 6.66 yuan, after Chinese media reports said the state-owned telecoms firm has finalised its mixed-ownership plan to introduce private capital to the company, despite China Unicom issuing a statement on Wednesday saying “uncertainty” still existed for the plan.

Reports also said the plan will be filed to the government for approval and Baidu, Alibaba, and Tencent, China’s largest internet companies, were invited to become shareholders.

In Hong Kong, the benchmark Hang Seng Index edged up 0.2 per cent or 52.7 points to end at 22,789.77, while the Hang Seng China Enterprises Index dipped 0.1 per cent to 9,838.06.

Turnover for the Hong Kong market increased to HK$89 billion from HK$69 billion in the previous day.

China Unicom’s H-shares surged 7.4 per cent to HK$9.42, making it the best performing blue-chip stock. Rival China Telecom jumped 3.6 per cent to HK$3.75 while China Mobile gained 0.8 per cent to HK$84.65. Tencent Holdings rose 0.4 per cent to HK$193.7.

Macau gaming stocks advanced across the board, as Wynn Macau climbed 3.2 per cent to HK$14.38, and Galaxy Entertainment rose 2.4 per cent to HK$38.5.