Hang Seng Index

China’s stocks drop most in 11 weeks as rise in government bond yields fuels liquidity concerns

Nod for a batch of IPOs and jump in bond yields trigger sell-off

PUBLISHED : Monday, 30 October, 2017, 9:15am
UPDATED : Monday, 30 October, 2017, 10:56pm

China’s stocks fell for the first time in seven days, with the benchmark index dropping the most in 11 weeks, as a slump in government bonds raised concerns that policymakers will tighten liquidity after the party congress.

The Shanghai Composite fell 0.8 per cent, or 26.48 points, to 3,390.34, ending a six-day, 1.4 per cent winning streak – the biggest gain since August 11. The CSI 300 Index of big-cap companies slid 0.3 per cent, and the ChiNext gauge of smaller firms tumbled 2.1 per cent. Hong Kong’s benchmark gauge also dropped 0.4 per cent.

Trading volumes on the Shanghai bourse were 24 per cent above the 30-day average, according to data compiled by Bloomberg.

China’s treasury bonds fell on Monday, with the yield on the 10-year government bonds rising by 8.4 basis points to a three-year high of 3.91 per cent, on speculation policymakers will strengthen the scrutiny of the financial markets after the 19th party congress that concluded last week. Concerns that more initial public offerings will hit the market also triggered the sell-off, as the China Securities Regulatory Commission approved a weekly batch of IPO sales valued at 9.5 billion yuan (US$1.4 billion) on Friday, almost double the average amount over the past two months.

“The sell-off in the bond market has spilt over to the stock market,” said Wu Kan, a fund manager at Shanshan Finance in Shanghai. “There are lots of concerns among stock investors about future liquidity as bonds are far more sensitive to that.”

Eight out of the 10 industry groups on the CSI 300 dropped on Monday, with consumer staples and materials companies falling the most. Liquor juggernaut Kweichow Moutai tumbled 4.2 per cent from a record high to 622.08 yuan and retailer Shanghai Bailian Group retreated 2.4 per cent to 15.38 yuan. Jinduicheng Molybdenum plunged 6 per cent to 7.65 yuan.

In Hong Kong, the Hang Seng Index slipped 0.4 per cent, or 102.66 points, to 28,336.19. The Hang Seng China Enterprises Index lost 0.7 per cent to 11,563.38.

The city’s benchmark gauge is likely to consolidate between the range of 28,000 and 28,800 for the next month, said Stanley Chan, director of research at Emperor Securities. It remains 1.3 per cent shy of an almost 10-year high registered this month.

“Investors are turning conservative and locking in profits as we head to the end of the year,” Chan said. “The performance of mainland A-shares became weaker after the party congress and added downward pressure to Hong Kong stocks.”

Property stocks fell broadly, as concerns are mounting that China will take further measures to rein in rising home prices and the city’s monetary authority will tighten policies after the Federal Reserve starts to shrink its balance sheet.

China Evergrande Group declined 2.8 per cent to HK$29.75 and Hang Lung Properties lost 1.4 per cent to HK$18. China Resources Land retreated 1.7 per cent to HK$23.45.

HSBC Holdings slipped 0.3 per cent to HK$76.85, giving up a gain of as much as 1.2 per cent after the bank reported a 448 per cent year on year jump in third-quarter profit.

Shares of Apple’s suppliers surged, after the smartphone maker said pre-orders for its iPhone X were “off the charts” since the start of pre-orders on Friday. AAC Technologies, which supplies acoustic components for Apple’s iPhones, rose 2.8 per cent to HK$141.40. Cowell e Holdings, a maker of cameras for iPhones, climbed 2.4 per cent to HK$3.84.

Energy stocks advanced, after state-media Xinhua reported that China’s three largest oil companies won three blocks of pre-salt reserves in Brazil in an auction on Friday. CNOOC climbed 3.8 per cent to HK$10.48 and PetroChina rose 2.2 per cent to HK$5.09. Sinopec added 1.4 per cent

China Hongqiao Group, the world’s largest aluminium producer, soared 32 per cent to HK$9.30 as it resumed trading after clarifying doubts over its profit numbers last week. Trading in its shares had been suspended since March, when short-seller Emerson Analytics published a report accusing Hongqiao of inflating profit.