China Stocks Slump to Two-Week Low on Regulatory Curb Concerns

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  • Shanghai authorities looking to cool home prices, people say
  • Benchmark equity index falls toward 200-day moving average

Chinese stocks fell to their lowest level in nearly two weeks, led by property shares, on concern the government will act to cool speculative activity in the nation’s financial markets.

The Shanghai Composite Index lost 0.6 percent at the close, near its 200-day moving average. A gauge of real estate companies slumped 2.1 percent, led by Gemdale Corp. Shanghai authorities are planning to hold meetings to discuss ways to cool surging property prices, according to people familiar with the matter. The ChiNext index of smaller companies slid 0.5 percent in Shenzhen. Stocks in Hong Kong were little changed, with Galaxy Entertainment Group Ltd. climbing after its earnings beat estimates.

The government on Wednesday imposed limits on lending by peer-to-peer platforms to individuals and companies in an effort to curb risks in the loosely regulated shadow-banking sector. The same day it sold 14-day reverse-repurchase agreements, its first offering of anything with a tenor other than seven days since February, spurring speculation officials want to curb leverage in the bond market by making it less profitable for investors borrowing to buy 10-year debt.

“It is probably the speculation that the authorities are discouraging over-leveraging in bond markets, which may have a chilling effect on the stock market,” said Bernard Aw, a Singapore-based strategist at IG Asia Pte. “From a technical perspective, the Shanghai Composite has been tracking the 200-day moving average lower recently and finally tested below it this morning.”

China’s top leaders last month pledged to curb asset bubbles in a Politburo meeting led by President Xi Jinping. In the past 12 months, the country has seen markets from stocks to commodities and property overheat as the central bank eased monetary policy, while weaker-than-estimated data suggest the extra liquidity is failing to benefit the broader economy.

The Shanghai Stock Exchange Property Index dropped the most since June 16. Gemdale slid 4.1 percent and China State Construction Engineering Corp. declined 2.2 percent.

Regulators may impose curbs on lending to developers and home buyers in an effort to dampen prices, said the people who asked not to be identified because the plans haven’t been publicly disclosed. Regulators will talk about increasing down payments to 50 percent for first-time residential buyers, and to 70 percent for buyers with previous borrowing records, according to the people, who said the plans have not been finalized.

P2P Cap

The ChiNext index dropped toward a two-week low earlier in the day, while P2P Financial Information Service Co. lost 2.9 percent in Shanghai.

The China Banking Regulatory Commission said on Wednesday an individual can borrow as much as 1 million yuan ($150,000) from P2P sites, including a maximum of 200,000 yuan per site. Corporate borrowers are capped at five times those levels. The authorities are concerned about defaults and fraud among China’s more than 2,300 online lenders.

“The P2P crackdown is part of a broad tightening to curb risks and cut leverage in the banking, insurance and brokerage sectors, as regulators deal with problems from last year’s loosening,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai. “The crackdown will likely kill 70 to 80 percent of the P2P companies.”

Excessively Leveraged

The monetary authority continued its cash injections on Thursday, offering 140 billion yuan of seven-day repos and 80 billion yuan of 14-day contracts. Accounting for maturing repos, the operations added a net 170 billion yuan to the banking system.

“Investors are waiting for further signals from the central bank,” said Shen Bifan, an analyst at First Capital Securities Co.’s fixed-income department. “It seems the PBOC wants to warn investors not to get excessively leveraged, but on the other hand, it wants to keep the measure moderate to avoid panicking the market.”

The Hang Seng Index fluctuated throughout the day as investors weighed a slew of earnings. Galaxy gained 2.1 percent. The company’s second-quarter earnings rose 22 percent from a year earlier as the opening of new resorts boosted non-gaming revenue and casino market share.

China Mengniu Dairy Co. surged 12 percent -- the most since April 2009 -- after its first-half sales beat analyst estimates. China Construction Bank Corp., which will announce earnings later Thursday, rose 1.4 percent.

Cathay Pacific Airways Ltd. advanced 1.6 percent. The stock is the worst-performing on the Hang Seng Index this month after saying on Aug. 17 that net income fell 82 percent.

Cnooc dropped 0.9 percent. The company swung to a 7.74 billion yuan loss in the January to June period, compared with a net income of 14.7 billion yuan a year earlier.