China Stocks Tumble Toward 15-Month Low as Stimulus Bets Unwind

  • Investors disappointed about lack of measures during G-20
  • Technology, industrial companies lead losses in Shanghai

Were Markets Expecting Too Much From the G-20 Meeting?

Chinese stocks fell, with the benchmark index approaching the lowest level since November 2014, as some investors were disappointed by a lack of specific measures to boost growth during the Group of 20 meetings in Shanghai.

The Shanghai Composite Index dropped as much as 4.6 percent. The measure has declined 24 percent this year, the worst performer among 93 global equity indexes, on concern capital outflows will accelerate and earnings deteriorate as the economic slowdown deepens. The yuan capped its longest losing streak this year.

Investors had hoped the government would announce measures to bolster the economy over the weekend, according to JK Life Insurance Co., after People’s Bank of China Governor Zhou Xiaochuan said on Friday there is room for more easing. There are also increasing signs funds are shifting from equities to housing, according to Steve Wang, chief China economist at Reorient Financial Markets Ltd.

"Investors feel disappointed over the lack of good news from the G-20, while the yuan has started to weaken again," Wang said in Hong Kong. "There are signs of panic buying in China’s property market as prices in large cities continue to rise. A hazy economic outlook prompted some people to sell shares and buy homes, while many stocks remain overvalued."

The Shanghai Composite declined 2.9 percent to 2,687.98 at the close as an index of 50-day price swings reached its highest level since November. The equity gauge fell 1.8 percent in February, extending January’s 23 percent plunge. The Hang Seng China Enterprises Index slid 1.5 percent, capping a fourth straight monthly decline. The Hang Seng Index lost 1.3 percent.

After Monday’s close, China’s central bank cut lenders’ reserve-requirement ratios by 0.5 percentage points.

Increased volatility in stocks threatens to undo policy makers’ efforts to project an image of stability in the nation’s financial markets after months of turbulence reverberated across the world. Investors are also selling before the nation’s legislators meet on Saturday for the annual National People’s Congress, where economic policies for the next five years will be approved, according to Partners Capital International Ltd.

"Before the G-20 meetings, people expected stabilization policies and the central bank to make statements, but not too much happened," said Ronald Wan, chief executive officer at Partners Capital in Hong Kong. "People tend to cash out before the parliamentary meeting."

Economic Data

The yuan fell 0.1 percent to 6.5477 a dollar in Shanghai in a seventh day of losses, as China’s central bank lowered the currency’s reference rate and the greenback advanced. The dollar plays the biggest role in a currency basket against which the monetary authority gauges the yuan, PBOC Governor Zhou said on Friday.

China is due to report its first gauge of economic strength for February on Tuesday with the release of the Purchasers’ Manufacturing Index. The measure probably remained unchanged at 49.4 from a month earlier, according to the median estimate in a Bloomberg survey. Readings below 50 indicate contraction.

Property prices in the nation’s richest cities are surging at the same time as margin traders unwind bullish bets on equities. Home prices in Shenzhen jumped 4 percent in January from a month earlier, taking gains over the past 12 months to 52 percent, the statistics bureau said last week. Prices in Shanghai are up 18 percent over the past year. The outstanding balance of margin debt on the Shanghai Stock Exchange fell to its lowest level since November 2014 on Friday.

“The red-hot property market may attract more and more fund inflows and investors worry this might divert liquidity from the stock market,” said Shenwan Hongyuan Group Co. analyst Qian Qimin.

Measures of technology, consumer discretionary and industrial stocks sank at least 3.9 percent on the CSI 300 Index. China Life Insurance Co. was the biggest drag on the Shanghai Composite, closing at its lowest level in two weeks with a 3.3 percent decline. Industrial & Commercial Bank of China Ltd., which has the second-largest weighting on the gauge, extended its loss this year to 12 percent.

The China Securities Regulatory Commission may shelve the overhaul of initial public offering processes and the start of the Shenzhen-Hong Kong exchange link as new chairman Liu Shiyu’s priority will be promoting stability rather than reforms, the South China Morning Post reported, citing unnamed "industry insiders."

— With assistance by Shidong Zhang, and Fox Hu

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