China Stocks Cap This Year's Worst Week Amid Crackdown Concerns

  • Gauges of energy and materials companies lead weekly declines
  • Shares linked to Xiongan zone are among poorest performers

Why China Stocks Are Unnerving Investors

Chinese shares capped their biggest weekly loss of 2017, with increased regulatory scrutiny and a crackdown on leveraged trading sapping investor sentiment.

The Shanghai Composite Index tumbled 2.3 percent this week, the most since mid-December, with mainland gauges of energy and materials companies leading the decline. Stocks that rose after China’s announcement of a new economic zone in Xiongan were among the worst performers. Hesteel Co., China Fortune Land Development Co. and Beijing Capital Co. plunged at least 20% for the week.

China’s securities regulator has stepped up criticism of what it called disruptive trading behavior, with chief Liu Shiyu saying at the weekend the nation’s bourses should punish irregularities “without mercy.” The A-share gauge has been the world’s worst-performing equity market over the past five days, with trust companies said to have been ordered to cut exposure to the property sector and the Shanghai securities regulator demanding a crackdown on illegal futures trading.

“The downward trend remains intact as regulators will likely maintain their strict stance over financial scrutiny," said Wu Kan, a Shanghai-based fund manager at Shanshan Finance Co. "The market can hardly avoid the impact from government policies.”

The ChiNext gauge of small-cap shares fell 0.6 percent at the close, posting a weekly decline of 2.6 percent. The Shanghai Composite was little changed for the day. In Hong Kong, the Hang Seng Index edged 0.1 percent lower at the close, extending a weekly loss to 0.9 percent. The Hang Seng China Enterprises Index lost 0.1 percent.

  • Materials and energy suffered most in the week, with gauges for both groups declining at least 2.8% as investors turned defensive amid concerns that economic growth may have peaked. Hesteel fell 20%, while Sinopec Oilfield Service Corp. lost 4.8%.
  • Defensive shares declined as they are undergoing a "technical correction", said Shanshan Finance’s Wu. The CSI 300 Consumer Staples Index dropped 1.2%, the worst performer out of 10 groups. Kweichow Moutai Co. slid 3.6%, the most since January 2016. Drugmakers also fell, with Huadong Medicine Co. slipping 4.4% and Yunnan Baiyao Group Co. declining 2%.
  • Fufeng Group Ltd. slumped more than 12% in Hong Kong, marking its largest one-day drop since August 2015, after its placement of 140 million shares was priced at HK$5.55 each. That’s a discount to Thursday’s close of HK$6.
  • Kerry Properties Ltd. slid 4.1% in Hong Kong, the most since November, after Bank of America Merrill Lynch analysts Fan Tso and Karl Choi cut the stock to underperform from neutral in a note Friday, saying that China’s luxury recovery may have muted earnings impact and is amply reflected in the stock’s price.
  • ASM Pacific Technology Ltd. jumped 5.4%. The company said in a stock exchange filing that net income rose to HK$736 million in the first quarter from HK$133.8 million a year ago. The company’s strong earnings are mainly due to better margins, Huatai Research analyst Ken Hui wrote in a note, maintaining a buy rating and price target of HK$116.
  • Technology shares climbed in Hong Kong as iPhone 8 optimism boosted Apple Inc.’s supplier AAC Technologies Holdings Inc. as much as 5.1% to the highest level since its trading debut in 2005, and funds were seen flowing into the sector from underperforming old economy stocks. Lenovo Group Ltd. gained 1.6% and Semiconductor Manufacturing International Corp. advanced 2.5%.

— With assistance by Amanda Wang

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