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China stock market

China’s stocks slip as official support for tech firms triggers sell-off in traditional sectors

Mainland traders rotate out of banks and liquor distillers into technology stocks as the government unveils plans to attract start-ups and tech giants to list domestically through Chinese depository receipts

PUBLISHED : Monday, 02 April, 2018, 11:33am
UPDATED : Monday, 02 April, 2018, 4:24pm

China’s stocks dropped for the first time in three days, as traders cashed out of “old-economy” companies from banks to liquor distillers after the government increased policy support for strategic emerging industries.

The Shanghai Composite Index slipped 0.2 per cent, or 5.72 points, to 3,163.18 at the close on Monday, erasing an earlier gain of as much as 0.7 per cent. The CSI 300 Index of big-caps retreated 0.3 per cent and the ChiNext gauge of smaller companies was little changed. Hong Kong’s market was shut for a public holiday.

While selling stocks in traditional industries, traders were moving into technology companies after policymakers said after the market closed on Friday that they would allow overseas-listed firms or unprofitable start-ups in fledging industries to raise funds domestically. Chinese companies that are listed overseas with a market cap of at least 200 billion yuan (US$31.9 billion) or innovative firms with valuations of no less than 20 billion yuan will be allowed to sell either shares or Chinese depository receipts on the mainland’s exchanges, according to a draft released on Friday. Depository receipts are surrogate securities that package together underlying overseas shares.

“There is clear policy guidance and there is strong policy support of technology and innovative industries,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai. “So there are lots of position adjustments going on among investors. They are moving into those tech stocks and out of the traditional industries.”

Online commerce juggernauts Alibaba Group Holdings and JD.com are likely to raise as much as 100 billion yuan this year as the first two companies to float CDRs, according to Sinolink Securities. The other three overseas-traded companies eligible to sell CDRs are Tencent Holdings, Baidu and NetEase, the brokerage said.

China Construction Bank dropped 3.1 per cent to 7.51 yuan and Industrial and Commercial Bank of China lost 2.1 per cent to 5.96 yuan. The two stocks gained at least 41 per cent last year. Agricultural Bank of China slid 1.8 per cent to 3.84 yuan and Ping An Bank shed 1.7 per cent to 10.71 yuan.

Liquor brewers also dropped. Shanxi Xinghuacun Fen Wine Factory slumped 3.8 per cent to 52.90 yuan and Jiangsu Yanghe Brewery Joint-Stock dropped 2.8 per cent to 105 yuan. Jiangsu King’s Luck Brewery slid 1.7 per cent to 15.44 yuan after saying a major shareholder plans to sell a 2 per cent stake in the company in the next six months.

Among the technology sector’s biggest winners, software developer Neusoft surged by the 10 per cent daily limit to 15.94 yuan and Taiji Computer jumped 8.4 per cent to 30.30 yuan. China National Software & Service gained 4.4 per cent to 17.02 yuan.

Sinolink Securities led the gains among brokerages on expectations that the issuance of CDRs will benefit their investment banking businesses. The stock advanced 4 per cent to 8.77 yuan. Huatai Securities rose 3.1 per cent to 17.77 yuan and Shanxi Securities rose 2.2 per cent to 7.91 yuan.

Pork producers climbed after China said it will impose a tariff of up to 25 per cent on US-imported pork and another 100-plus agricultural products. That is a retaliatory measure against an earlier move by the US to levy tariffs on steel and aluminium imported from China.

Hunan New Wellful jumped 5.2 per cent to 5.82 yuan. Muyuan Foodstuff rose 4.3 per cent to 47.22 yuan and Guangdong Wens Foodstuffs Group added 3.5 per cent to 21.59 yuan.

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