China Stocks Retreat to Six-Week Low Amid Bond Market Selloff

  • Shanghai Composite is among world’s biggest losers this month
  • Debt rout, rising money-market rates spur investor concern

China's Bond Rout Triggers Chain Reaction

Chinese stocks dropped to a six-week low amid waning turnover as oil producers and materials shares led declines.

The Shanghai Composite Index fell 0.5 percent to 3,102.88 at the close. A gauge of mainland energy companies retreated 1.3 percent to erase their December advance. The nation’s shares have slumped more than 4 percent this month to be among the world’s biggest losers as surging money-market rates sparked a bond rout and the yuan weakened to an eight-year low. The Hang Seng Index dropped 0.5 percent to its lowest level in five months.

Chinese markets are ending the year much as they began it -- in the red. Concern about the pace of a depreciating currency is fueling capital outflows, while government efforts to curb asset bubbles have spurred turmoil in the debt market and conjured fears of company defaults. The Shanghai Composite has fallen 12 percent in 2016, poised for its biggest annual loss in five years, while the yuan is heading for its worst year since 1994.

"With government bonds declining and financing costs rising, funds are reluctant to buy the dips in the stock market," said Shen Zhengyang, a Shanghai-based analyst at Northeast Securities Co. "News about banks’ off-book wealth management products show regulators are turning more prudent in financial risk control. It might have a short-term impact on bank shares, with overall bank credit expansion being limited."

The People’s Bank of China will include wealth management products held off balance sheets in its framework for gauging risk to the financial system starting in the first quarter, according to a newspaper controlled by the monetary authority. Rapid growth of such products can threaten the economy, the Financial News reported Monday, citing an unidentified PBOC official.

Turnover on the Shanghai stock benchmark fell to a two-month low on Monday, while trading volume on the Hang Seng Index was 25 percent below the 30-day average for this time of day on Tuesday. The Hong Kong equity measure fell below its closely watched 200-day moving average after erasing its gain for the year.

  • China Petroleum & Chemical Corp. declined 1.1% in Shanghai while PetroChina Co. fell 0.9% after oil futures slid in New York
  • Bank of Ningbo Co. sank 2.4% and China Citic Bank Corp. lost 2.6%
  • Wuhan Iron & Steel Co. dropped 3.4%, Baoshan Iron & Steel Co. declined 3%, putting them among the biggest laggards on the CSI 300
  • The HSI has fallen 9.8% since reaching the year’s high on Sept. 9, approaching the 10% level that signals a correction
  • China Mobile Ltd. advanced 1.6% after November operational data showed the number of 4G customers exceeded 500 million for the first time
  • HSBC Holdings Plc dropped 2% to a two-week low after the company said it completed a $2.5 billion share buyback that began in early August

— With assistance by Amanda Wang

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