China Stocks Drop to Two-Week Low on Korea, Regulation Concern

  • Hong Kong markets closed for holiday, will open on Tuesday
  • Companies that surged on Xiongan plans pare back recent gains

Control Risks' Chamorro Sees Volatility in Korean Markets

Shares in mainland China slid on concern over regional geopolitical tension and the stock regulator’s call for stricter supervision of companies.

The Shanghai Composite Index declined 0.7 percent to 3,222.17 at the close, the lowest level since March 30. Utilities and materials shares were among the biggest decliners. China Fortune Land Development Co. slumped by the 10 percent daily limit as the heat came out of a rally in stocks linked to a new economic zone near Beijing. Trading in Hong Kong’s stock market will resume on Tuesday after a holiday.

Tension between Washington and Pyongyang has escalated in recent weeks, unnerving Asian markets. U.S. President Donald Trump is willing to consider “kinetic” military action, including a sudden strike to counteract North Korea’s series of destabilizing actions, said two people familiar with the White House’s thinking. Traders also said that a speech by China’s securities regulator Liu Shiyu, in which he called for stricter supervision of mainland companies and urged exchanges to punish market irregularities “without mercy”, weighed on sentiment on Monday.

“China’s financial regulation coupled with geopolitical risks surrounding North Korea have heightened risk aversion and put pressure on stocks," said Ken Chen, an analyst at KGI Securities Co. in Shanghai. “The downside should be limited as first-quarter figures showed economic fundamentals remained sound.”

The world’s second-largest economy expanded 6.9 percent in the Jan.-March period, data released Monday showed, above the median estimate for a 6.8 percent gain in a Bloomberg survey. March industrial output, retail sales and fixed asset investment also beat economists’ estimates.

  • Companies that gained after China’s announcement of Xiongan New Area took a hit after the rally lifted their 14-day relative strength indexes above the 70 level some traders interpret as a sign an asset is overbought. Juli Sling Co. and China Fortune Land both dropped by the 10% daily limit.
  • Sichuan Lutianhua Co. slumped 10% after its 2016 preliminary results released Friday post-market showed the company swung to a net loss of 637.2 million yuan from a net profit of 18.3 million yuan a year earlier.
  • A gauge of mainland developers fell for a fourth day in its longest slide since mid-January. Shenzhen Heungkong Holding Co. slid 6%, marking its biggest loss of the year.
  • The CSI 300 Index’s materials gauge dropped 0.8%, the most among 10 industry groups. Hesteel Co. slipped 8.6% and Qinghai Salt Lake Industry Co. declined 6.1%.

— With assistance by Amanda Wang, and Amy Li

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