China’s Stocks Fall on Tighter Liquidity Concerns as Banks Slump

China’s stocks fell, capping the benchmark index’s first weekly loss in five weeks, as financial companies slumped on concern liquidity is tightening before the end of the month.

China Merchants Bank Co. slid 3.2 percent after saying it plans to raise 34.8 billion yuan ($5.7 billion) in the world’s second-largest share sale this year. Ping An Bank Co. tumbled 3 percent as benchmark money-market rates headed for their biggest weekly gain in a month. The Securities Times reported some banks had suspended new mortgage loans after approaching their monthly limit. Everbright Securities Co. fell 1.4 percent for a four-day loss of 19 percent after its president resigned.

The Shanghai Composite Index (SHCOMP) slid 0.5 percent to 2,057.46 at the close. The index dropped as much as 1.8 percent in the last hour of trading from a gain of as much as 0.6 percent. Exactly a week ago the nation’s shares were roiled by a trading error at Everbright Securities that spurred a 53 percent surge in volumes and sent the Shanghai Composite to its biggest intraday gain since March 2009.

“Investors are oversensitive right now to any bad news after the recent market disruption,” said Gerry Alfonso, a Shanghai-based trader at Shenyin & Wanguo Securities Co. The China Merchants share sale was also a drag on the market, he said.

Share Sale

The Shanghai index has declined 9.3 percent this year, dragging down its projected 12-month profit to 8.3 times, compared with the three-year average of 10.4. Trading volumes in the index were 13 percent above the 30-day average, according to data compiled by Bloomberg.

Merchants Bank dropped 3.2 percent to 10.56 yuan. The lender will offer a total of 3.75 billion Shanghai and Hong Kong-traded shares at 9.29 yuan or HK$11.68 each, it said in regulatory filings yesterday. That represents a 15 percent discount to yesterday’s closing price in Shanghai, or an 18 percent discount to the Hong Kong shares.

Chinese lenders have announced plans this year to raise as much as 290 billion yuan from bond and equity offerings as the regulator tightens capital rules and policy makers crack down on short-term financing.

Ping An Bank slid 3 percent to 10.62 yuan. Industrial Bank Co. declined 2 percent to 10.39 yuan. Some Chinese banks in Shenzhen city suspended new mortgage loans after approaching the monthly limit, the Securities Times reported, citing banks’ employees. The banks included Ping An Bank and China Minsheng Banking Corp., the report said.

Credit Crunch

The benchmark money-market rate headed for its biggest weekly gain in a month on concern cash supply will tighten as banks cover month-end obligations. The seven-day repurchase rate rose even after the People’s Bank of China added a net 72 billion yuan ($11.8 billion) to the financial system this week, compared with 48 billion yuan in the period to Aug. 16, data compiled by Bloomberg show.

“There’s speculation the drop could be due to tight liquidity concerns,” Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “We have been worried there will be a repeat of the credit crunch, similar to the one we had in June.”

A crackdown in June 2013 on off-balance-sheet lending and other credit outside the banking system, known as shadow banking, helped drive money-market rates to a record, cutting off smaller banks’ borrowing on the interbank market.

Everbright Securities

Everbright Securities dropped 1.4 percent to 9.84 yuan. Chairman Yuan Changqing replaced Xu Haoming as president as the company seeks to allay investors’ concern after it made 23.4 billion yuan ($3.8 billion) of erroneous buy orders on Aug. 16.

The China Securities Regulatory Commission plans to adopt new measures to improve supervision systems to prevent trading errors, the China Securities Journal reported, citing an unidentified person.

Shanghai International Port (Group) Co. jumped 10 percent to 2.81 yuan after Guotai Junan Securities Co. said logistics companies will benefit from a Shanghai free-trade zone that was approved by the State Council yesterday. The construction of the free-trade zone will lure foreign companies and boost the number of tourists from overseas, analysts Jiang Ya and Zhao Xueqin at Citic Securities Co. wrote in a report.

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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