Photographer: China Photos/Getty Images

China Stocks Sink Most in Four Months Amid Leverage Crackdown

  • Shanghai Composite Index falls as much as 1.9% on Monday
  • Regulators have stepped up campaign to curb speculation

A selloff in Chinese stocks deepened, with the benchmark gauge slumping the most in four months, amid concern authorities will step up measures to crack down on leveraged trading.

The Shanghai Composite Index fell 1.4 percent at the close, the biggest one-day loss since Dec. 12. Industrial companies and material producers led losses. The ChiNext small-cap gauge slipped 1.6 percent to 1,809.91, its lowest closing level since September 2015.

China’s authorities are taking advantage of a strengthening economy to reduce financial-system risk by tightening the screws on leverage. The banking regulator said late Friday it will strengthen a crackdown on irregularities in the financial sector, echoing comments by the securities watchdog just days earlier, while the top insurance official is being investigated on suspicion of “severe” disciplinary violations. The Shanghai Composite has slumped almost 5 percent since closing at a 15-month high on April 11, the biggest loss among global gauges.

"Market sentiment has been damped by recent tightening supervision on all fronts such as the banking commission, insurance commission, securities regulator," said Ben Kwong, executive director of KGI Asia Ltd. in Hong Kong. "They expressed concern about bubbles and credit defaults. The deleveraging process is still in progress."

The declines dented optimism in Hong Kong, where the Hang Seng Index rose 0.4 percent, paring an earlier gain of as much as 0.7 percent that had come amid global risk appetite on bets that pro-growth centrist Emmanuel Macron will be France’s next president. The Hang Seng China Enterprises Index climbed 0.6 percent at the close, trimming an advance of 1.1 percent.

China is likely to take more deleveraging measures, the Financial News said in a front-page commentary. The banking regulator has ordered local units to assess cross-guaranteed loans, according to a Caixin report.

Traders were watching to see whether the Shanghai gauge would pare losses to less than 1 percent by the close, as had been the pattern recently. The index had gone more than 80 trading days without a loss of more than 1 percent on a closing basis, the longest stretch since the market’s infancy in 1992.

"Investors had expected officials to give some kind of signal to soothe the market after the big falls earlier last week, but their hope came to naught, with regulators saying over the weekend that they want to continue tightening,” said Chen Yalong, an analyst in Shanghai at Northeast Securities Co.

  • A gauge of Macau gaming companies fell 1.5% after four stocks were downgraded at JPMorgan Chase & Co. MGM China Holdings Ltd. and Sands China Ltd. were lowered to neutral from overweight, while SJM Holdings Ltd. and Melco International Development Ltd. were cut to underweight from neutral.
  • Jiangsu Yinhe Electronics Co. slipped by the 10% daily limit in Shenzhen after saying first-quarter profit tumbled 45% from a year earlier to 37.9 million yuan.
  • Cheung Kong Infrastructure Holdings Ltd. rose 4.1% in Hong Kong to the highest closing level since October after the company’s rating was upgraded to buy from sell at Citigroup Inc.
  • Guangzhou Tinci Materials Technology Co. tumbled by the 10% daily limit in Shenzhen after the company said its net income slid 9.8% in the first quarter from a year earlier to 64 million yuan.

— With assistance by Sarah McDonald

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