Mainland shares end lower amid worries of regulatory curbs, while Hang Seng ends at fresh 2016 high

PUBLISHED : Wednesday, 27 July, 2016, 9:17am
UPDATED : Wednesday, 27 July, 2016, 10:59pm

Chinese stocks were battered on Wednesday, with companies traded on the startup board ChiNext suffering their worst day in more than a month amid reports that Chinese regulators will introduce tougher regulatory curbs on wealth management products.

A rumoured crackdown on speculative stock trading and risky shadow banking were also cited as factors weighing on sentiment.

Meanwhile, Hong Kong stocks recouped losses in late trading, extending their winning streak to a third session, reflecting fresh 2016 highs.

The Shanghai Composite Index slid 1.9 per cent or 58.17 points to 2,992.00. The startup board ChiNext Index sank 5.5 per cent or 124.16 points to 2,155.39, its biggest percentage drop since mid-June.

In Hong Kong, the Hang Seng Index rose 0.4 per cent or 89.26 points to 22,218.99, the highest close since December. The Hang Seng China Enterprises Index gained 0.3 per cent or 30.77 points at 9,093.02.

“Today’s sell-off [in China] was mainly triggered by news that regulators may launch a massive crackdown against speculative trading in stock markets and shadow lending by banks, in order to prevent systemic financial risks,” said Zhang Ying, a stock analyst for Shanghai Xinlande Securities.

Sentiment was also weighed by a mainland news report that the nation’s top banking regulator would tighten oversight on wealth management products (WMPs), a type of shadow bank lending, Zhang said.

Mainland Chinese media Yicai reported on Wednesday that revised regulations on commercial bank investments in WMPs have been handed out for review, which may mean the policy will be formally introduced soon.

The new regulations may also introduce new controls on the issuance of WMPs.

The regulatory curbs are expected to add pressure on A-shares in the short term, according to a note from China International Capital Corp.

About 23.5 trillion yuan is under management in WMPs at the end of 2015, up from 1.7 trillion yuan in 2009, according to ANZ.

“This is going to have some real impact on the A-share market, which is expected to last for a while,” said Hao Hong, Managing Director and Chief Strategist of Bocom International. “Back in 2013, the stock market was hit hard when the regulator introduced restrictions on WMPs.”

In addition, China’s top securities regulator has recently pushed for closer scrutiny of IPOs and private placements by listed companies, the state-run China Securities Journal reported Wednesday.

Earlier this week, the Shenzhen Stock Exchange warned against insider trading and speculative activity in the shares of companies linked to virtual reality and artificial intelligence.

“It’s quite unusual that the Politburo on Tuesday’s meeting mentioned it will ‘contain asset bubbles’. Many A-share investors think the stock market is also among their targets,” Zhang added.

The Politburo is China’s top leadership body.

Among other Chinese stock indexes, the large-cap CSI300 lost 1.6 per cent or 51.35 points to 3,218.24. The Shenzhen Composite Index skidded 4.5 per cent or 90.97 points to 1,953.99.

Brokerage firms were lower, with Huatai Securities down 2 per cent to 19.94 yuan, Southwest Securities off 1.9 per cent to 7.43 yuan, and Citic Securities lower by 1.1 per cent to 16.63 yuan.

In Hong Kong, Chinese online major Tencent Holdings was up 1.4 per cent to HK$189.00, while HSBC Holdings rose 0.7 per cent to HK$50.60, and Bank of China gained 1.2 per cent to HK$3.25. Asian life insurer AIA Group posted modest losses ahead of its half-year results announcement on Thursday, closing down 0.4 per cent at HK$49.65.

The rises followed gains in Japanese stocks on Wednesday, after Japanese Prime Minister Shizo Abe said his government would launch a stimulus package of 28 trillion yen to reflate the economy.

With additional reporting from Celia Chen