China Stocks Sink Most in Six Months as Property Concerns Build

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China's Builders Face a Tough Year

Chinese stocks slumped the most in six months on worsening concern about the outlook for the property market and as curbs on insurers’ equity investments spurred selling.

The Shanghai Composite Index fell 2.5 percent to 3,152.97 at the close, its biggest loss since June 13. A measure of property companies tumbled 3.5 percent after China Vanke Co.’s president predicted home sales will drop “significantly” in the coming year. Gree Electric Appliances Inc. sank 6.1 percent. Foresea Life Insurance Co. said it won’t increase its holdings in Gree and will gradually sell the shares, while the insurance regulator suspended Evergrande Life’s entrusted stock investment.

The nation’s top securities official has slammed leveraged stock buyers as “robbers” as officials move to rein in financial risks associated with a surge in dealmaking. Since 2014, Chinese insurers have stepped up acquisitions as their premium income has expanded. The opening up of Shenzhen’s stock market has failed to stimulate much demand from foreign investors, with a daily quota yet to be filled and the city’s key measure tumbling. The Shenzhen Composite Index dropped 4.9 percent, while the ChiNext gauge of small-cap shares in the city sank 5.5 percent.

"The regulatory curbs on insurance funds has hurt sentiment as the possible targets of insurers’ stake boosts were among the main focuses of the market earlier," said Zhang Gang, a Shanghai-based strategist at Central China Securities Co. "The first week of the Shenzhen link shows investors on both sides are relatively calm about the market outlook so there won’t be any big boost to brokers. The sector may have priced in short-term positives including the Shenzhen link."

The Hang Seng China Enterprises Index retreated 1.7 percent. The Hang Seng Index fell 1.4 percent. A measure of property companies led declines in Hong Kong, as the city’s three-month interbank rate jumped the most since 2008. The city’s financial chief John Tsang resigned, signaling that he’ll run to become the city’s chief executive in the first leadership contest since mass pro-democracy protests two years ago. Chief Executive Leung Chun-ying unexpectedly announced last week that he wouldn’t seek a second term because of pressure on his family.

China is scheduled to release its November data this week including money supply, industrial output and retail sales. 

  • CSG Holding Co. Ltd., Shenzhen Overseas Chinese Town Co. and Guangdong Shaoneng Group Co., all held by Foresea Life, each fell at least 3.8%. The CIRC this year has been tightening controls on shorter-maturity insurance products, mostly universal-life policies. Surging revenue from such sources and insurers’ growing allocations into long-term equities and real estate threaten to exacerbate a mismatch between the liquidity of assets and liabilities
  • Poly Real Estate Group Co. retreated 2.8%. Property prices will drop in cities where they have risen “overly fast,” People’s Daily cited China Vanke President Yu Liang as saying in an interview.
  • Cathay Pacific Airways Ltd. dropped 1.7%, China Eastern Airlines Corp. fell 4.7% amid concerns higher fuel prices will increase costs.
  • Guoyuan Securities Co. slumped 6.8%, Huatai Securities Co. declined 2.3%
  • Three-month Hong Kong dollar interbank rate rises 10 basis points to 0.82107 percent, highest since April 2009, according to fixing from the Hong Kong Association of Banks.
  • The yield on China’s one-year sovereign bonds increased 15 basis points to 2.65 percent, while the 10-year yield rose 9 basis points to 3.19 percent

— With assistance by Amanda Wang, and Kana Nishizawa

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