China stocks cap steepest weekly drop in three months on Xinhua’s blasting of stock run-up in Moutai

Kweichow Moutai – fourth-biggest stock on Shanghai Composite Index – falls 4 per cent from record high to 690.25 yuan

PUBLISHED : Friday, 17 November, 2017, 9:20am
UPDATED : Friday, 17 November, 2017, 9:34pm

Mainland China stocks fell for the fourth day, posting the worst weekly performance in three months, as an article by the state-owned Xinhua News Agency that singled out Kweichow Moutai for excessive gains in stock prices renewed concerns that the regulator will rein in speculation on stocks with rich valuations.

The Shanghai Composite Index dropped 0.5 per cent, or 16.34 points, to 3,382.91 at the close on Friday. It declined 1.5 per cent for the week, the most for the five-day period since August. The ChiNext gauge of growth companies tumbled the most since July, retreating 2.4 per cent. Hong Kong’s equity benchmark posted a third straight weekly gain.

Shares worth 643.8 billion yuan (US$97.1 billion) changed hands on the mainland’s two exchanges, the most since September 12, according to data compiled by Bloomberg. About 100 stocks fell by the 10 per cent daily cap on Friday.

Kweichow Moutai led the slump on Chinese distillers of fierce liquor after the Xinhua article, published after Thursday’s market close, said the share-price increase in the industry’s giant was too rapid and risked undermining the newly established pattern of value investing among investors.

The state mouthpiece also spooked small-cap stocks, which are three times as expensive as big blue-chip companies, as traders rushed to sell on fear of regulatory crackdown.

“Some of the stocks have risen at an overly fast pace and are showing signs of overheating,” said Wei Wei, a trader at Huaxi Securities in Shanghai. “The Xinhua article is simply a warning against over-speculation.”

Kweichow Moutai, which has already vaulted to the fourth-biggest stock on the Shanghai Composite Index, slid 4 per cent from a record high to 690.25 yuan, paring its gain to 107 per cent this year. The stock currently trades at its most expensive level since 2010.

Kweichow Moutai slumps after Xinhua warns shares are rising too fast

Other industry peers also fell. Hebei Hengshui Laobaigan Liquor plunged 8.2 per cent to 36.05 yuan and Sichuan Tuopai Shede Wine sank 4.2 per cent to 45.62 yuan.

HC SemiTek dropped among smaller growth companies, plunging by the 10 per cent daily limit to 20.21 yuan in Shenzhen. The drop pared the share-price gain in the maker of light-emitting diode chips to 125 per cent this year. Allwinner Technology, a maker of smart application processors, slid 9 per cent to 25.72 yuan as the stock traded at 100 times earnings.

While selling stocks with stretched valuations, traders snapped up shares with cheapest valuations to seek havens. China Merchants Bank climbed 4.6 per cent to 29.38 yuan and Bank of Nanjing added 3.3 per cent to 8.13 yuan.

The 21 banks on the Shanghai Composite are valued at 7.9 times estimated earnings on the average, the lowest among all the sectors, according to Bloomberg data.

In Hong Kong, the Hang Seng Index advanced 0.6 per cent, or 180.28 points, to 29,199.04. The Hang Seng China Enterprises Index, or the H-share gauge, climbed 0.7 per cent.

Genting Hong Kong, an operator of cruise ships, climbed 3.5 per cent to HK$2.07 on a plan to sell five million shares in Norwegian Cruise Line for US$270.1 million, after deduction of expenses.

Yixin Group, China’s biggest online car retailer backed by Tencent Holdings, shed 3.1 per cent to HK$7.87, putting the stock within 2.2 per cent from breaching its initial public offering price on the second day of trading.

HSBC Holdings slipped 0.1 per cent to HK$75.25 even after the bank said it bought back 3.65 million shares in London on Thursday.