Chinese Stocks Extend Monthly Rout as Energy Producers Decline

  • PetroChina drops as energy gauge slides to lowest on record
  • Net selling of Shanghai shares reaches highest since November

Global Stocks Sell Off: What Happened to the QE Premium?

Chinese stocks fell, extending last month’s rout, as traders unwound bullish bets and oil near $30 a barrel weighed on energy producers.

The Shanghai Composite Index slid 0.4 percent to 2,739.25 at the close, extending its slide this year to 23 percent. China Coal Energy Co. and PetroChina Co. led a gauge of energy companies to a record low. Developers gained after the central bank lowered mortgage down payments for first-home buyers. The Hang Seng China Enterprises Index tumbled 2.5 percent to 7,858. 31, the lowest level since Jan. 21.

Margin debt in China’s stock market shrunk to the lowest level since December 2014 on Monday, a sign of waning investor confidence after the Shanghai Composite’s biggest monthly tumble since 2008. The central bank said it will allow banks to cut the minimum required mortgage down payment to 20 percent from 25 percent for first-home purchases to the lowest level ever, as it steps up support for the property market. Mainland markets will be closed all next week for lunar new year holidays.

“The fear is that the stock market will continue to fall despite huge declines of late as the economy performs very poorly,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. “There’s a spillover of psychological fear from a decline in U.S. stocks and ahead of next week’s holidays, people just want to dump holdings.”

Stock Volatility

Futures on the Standard & Poor’s 500 Index were little changed after the gauge fell 1.9 percent. The Hang Seng Index sank for a third day, losing 2.3 percent, while the CSI 300 Index shed 0.4 percent. Trading volumes in Shanghai were 27 percent below the 30-day average with the benchmark gauge’s 30-day volatility near the highest since October. Net selling of Shanghai shares through the exchange link with Hong Kong rose to the highest since Nov. 11.

Consumer companies found little comfort from data showing an improvement in services. China’s services purchasing managers’ index rose to 52.4 in January, the highest print since July, compared with 50.2 in December, according to data from Caixin Media and Markit Economics.

A gauge of energy companies fell 1.6 percent as oil held losses near $30 a barrel after the biggest two-day drop in almost seven years. China Coal slid 1.7 percent. PetroChina, the biggest weighting on the main board, lost 1.4 percent in Shanghai and 4.2 percent in Hong Kong.

A gauge of property shares rose 0.4 percent in Shanghai as Nanjing Chixia Development Co. rallied 2.9 percent and Poly Real Estate Group Co. added 1.1 percent. In Hong Kong, AIA Group Ltd. and Manulife Financial Corp. shares slumped at least 4.9 percent amid concern that China may place restrictions on the buying of overseas insurance.

The yuan in Hong Kong fell 0.2 percent, the lowest level since Jan. 8. Traders are paying more to bet on a yuan decline with options than they do for any other Asian currency, suggesting bears are regrouping after being thwarted by the central bank last month. The extra cost for three-month options to sell the yuan against the dollar in the Hong Kong market over contracts to buy jumped in January by the most since 2011.

The outstanding balance of margin debt on the Shanghai and Shenzhen stock exchanges dropped for 22 straight days to 897.6 billion yuan ($136.4 billion) on Monday, according to data compiled by Bloomberg. It fell below the lows reached during a summer rout, when the Shanghai gauge tumbled more than 40 percent from mid-June through its August low.

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