China opens door to London stocks to reignite capital flight fears, sends Shanghai index down for fifth day
China stocks fell for a fifth day on Monday, after the unveiling of draft rules for an exchange link with London fuelled concerns about fund outflows, offsetting resilient interim corporate results on the mainland.
The Shanghai Composite Index shed 0.2 per cent at the close, capping a five-day, 2.2 per cent losing streak. The gauge was about 2 per cent away from falling to a 30-month low set in August. Hong Kong’s Hang Seng Index slipped by 0.6 per cent.
“The market sentiment is very fragile and investors don’t like the news about the link,” said Wei Wei, a trader at Huaxi Securities in Shanghai. “They read the news as an extra way of fundraising, and that will weigh on the already tight liquidity situation.”
Traders looked past earnings results to focus on the draft rules released by the China Securities Regulatory Commission late on Friday, which laid out a framework for a long-awaited stock connect programme between the Shanghai and London exchanges. Companies trading on these two bourses will be able to float depositary receipts on the other exchange, although there will be restrictions on the conversion of surrogate securities and underlying stocks. The rules, which were published to seek public comment, did not say when the new link will start.
The regulatory body has already put on hold a plan that will allow China’s overseas listed companies to sell Chinese depositary receipts in the home market, over fears this could siphon away funds from existing equities.
The Shanghai Composite Index, the world’s worst-performing major benchmark, remains down by 18 per cent this year. It lost 4.52 points to 2,720.73 on Monday. The CSI 300 Index of big caps slid by 0.4 per cent, but the ChiNext gauge of smaller companies rebounded by 0.6 per cent.
Investors did not cheer the good results from the interim earnings season that ended on August 31. The 3,000-plus companies listed on the mainland’s exchanges posted an average of 14.1 per cent earnings growth in the second quarter, accelerating from 13.4 per cent growth in the previous three-month period, according to Haitong Securities.
Overseas investors bought a net of 405.4 million yuan in (US$59.4 million) mainland stocks through the exchange links with Hong Kong on Monday, the first day after MSCI doubled the weighting of yuan-denominated equities in its benchmark indexes.
Of the 10 industry groups on the CSI 300 nine were lower, with industrial and material companies dropping the most. The Metallurgical Corporation of China dropped by 3.9 per cent to 3.44 yuan in Shanghai after reporting slower growth in second-quarter earnings. China Eastern Airlines slumped by 2.4 per cent to 5.64 yuan. Baoshan Iron and Steel also sank by 2.4 per cent to 7.69 yuan.
Solar stocks, however, surged on Monday after the European Union decided to end its five-year anti-dumping measures against Chinese photovoltaic products. Jiangsu Huasheng Tianlong Photoelectric, a maker of solar equipment, jumped by the 10 per cent daily cap to 5.92 yuan and solar module maker EGing Photovoltaic Technology rallied by 6.4 per cent to 3.31 yuan.
In Hong Kong, the Hang Seng Index sank by 176.01 points to 27,712.5 on Monday. The Hang Seng China Enterprises Index, or the H-share gauge, lost 0.6 per cent.
Tencent Holdings sank by 2.1 per cent to HK$332.80, providing the biggest drag on the Hang Seng Index. Geely Automobile Holdings slid by 4.4 per cent to HK$15.94.