Update | China’s Shanghai and Shenzhen markets down midsession on profit-taking; Hong Kong off
Shanghai Index hits 5,000 points for first time in seven years in early rally, ten backs off
Chinese shares slipped into the red by the midday break on Friday after an early rally ran into waves of profit-taking, while the weak performance of Wall Street depressed sentiment and led Hong Kong into negative territory.
The Shanghai Composite Index eased 0.12 per cent to 4,941.01 points by midsession, having earlier risen above the 5,000 point level for the first time in seven years.
The Shenzhen Composite Index declined 0.06 per cent to 3,021.92 points.
Hong Kong’s Hang Seng Index dropped 0.88 per cent or 242.21 points to 27,309.68 points by noon, while the Hang Seng H-shares Index plunged 1.84 per cent or 260.33 points to 13,866.68 points.
“When the Shanghai Composite Index rose above 5,000 points, there was a sell-off to take profits. As the market cannot hold above 5,000, it was natural to take (money off the table),” said Louis Wong, a director of Phillip Capital Management (HK).
One reason for the initial strong surge in mainland Chinese markets was follow-through momentum from the previous session’s strong performance when Shanghai closed up 0.76 per cent after enduring a fall of 5.3 per cent during Thursday’s trade, he said.
Curbs on margin lending kept values under pressure as many brokers are now reluctant to provide funds for investors to purchase small and mid-cap stocks, which are more predominant in Shenzhen compared to Shanghai, Wong said.
Louis Tse, a director of VC Brokerage, said mainland retail investors are withdrawing from small cap stocks in China’s markets because they are perceive to be in a bubble, and switching to big cap blue chip script. This was a leading reason for the initial strong rise in the Shanghai and Shenzhen indices.
A BNP Paribas report of June 4 said China’s A-shares are in a bubble that must inevitably burst, although when the bubble will pop is uncertain.
“(On June 4), the Shanghai Composite was up by 52 per cent year-to-date and more than 140 per cent year-on-year. The even frothier Shenzhen Composite has soared by more than 115 per cent year-to-date and 185 per cent year-on-year. Chinese equities remain the best-performing asset on the planet by a wide margin. The scale and speed of these gains scream ‘speculative bubble’,” said BNP Paribas.
“Now pushing towards 3.5 per cent of GDP, China’s outstanding margin debt exceeds that of the US. In classic bubble fashion, the pace of increase in margin debt has also accelerated. Over the last two months, margin debt has expanded at an annualised clip of 6 per cent of GDP,” it added.
Last week, a record 4.5 million new trading accounts were opened in mainland China, compared to less than 200,000 per week from 2010 to the first half of 2014, BNP Paribas noted.
Wong said the Hang Seng Index fell on Friday morning because of the poor performance of overseas markets, particularly Wall Street.
The Dow Jones Industrial Average fell 0.94 per cent on Thursday, while the Nasdaq Composite Index dropped 0.79 per cent, after Greece delayed a debt repayment to European creditors, sparking fears that Greece is moving closer towards bankruptcy.
