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China's Biggest Stocks Lead Selloff as Afternoon Drop Deepens

Updated on
  • CSI 300 Index falls 1.8%, biggest decline since November
  • Traders say regulatory pressure, profit-taking behind drop
China Stock Euphoria Enters New Stage

China’s stocks tumbled on Monday, with losses deepening in afternoon trade, as investors dumped high-flying large-cap shares.

The CSI 300 Index of the biggest companies sank 1.8 percent at the close, the steepest drop since Nov. 23. Liquor distillers were among the biggest laggards, with market darling Kweichow Moutai Co. sliding 5.3 percent. Traders cited several reasons for the declines, including:

  • Regulatory pressure: China’s securities regulator said in a Jan. 26 statement that it will do more to curb market manipulation, while the banking watchdog unveiled over the weekend new fines on lenders for misuse of funds
  • Concern that China’s economic growth is slowing
  • The approaching Lunar New Year holiday is encouraging some investors to lock in January profits -- even after Monday’s slump, the CSI 300 is up 6.7 percent this month.

Big caps were the brightest spot in the onshore equity market last year, surging as their earnings outlook improved and investors chased stocks less affected by the nation’s deleveraging campaign. Still, it’s becoming a bumpier ride: 50-day volatility is now at the highest level since August 2016.

“Investors need to be wary of the risk that the rally in big caps may be coming to an end,” said Guo Feng, head of wealth management department at Northeast Securities Co. “Profit-taking pressures are mounting after strong gains, and China’s economic growth is expected to slow from last year.”

The Shanghai Composite Index declined 1 percent at the close after capping a sixth straight weekly increase, while the Shenzhen Composite Index lost 1.6 percent. Hong Kong’s benchmark Hang Seng Index slipped 0.6 percent after a 16 percent gain over seven weeks. Sunny Optical Technology Group Co. and Country Garden Holdings Co., which have more than doubled in the past 12 months, led the index lower.

“The rally in both markets has been too fast,” said Linus Yip, Hong Kong-based strategist with First Shanghai Securities Ltd. “Investors are locking in profits in those with high valuations and piling into more attractive bets like Chinese banks.”

Chinese lenders were among the best performers in Hong Kong. Postal Savings Bank of China Co. climbed 5 percent and Industrial & Commercial Bank of China Ltd. rose 1.4 percent, with both closing at record highs.

— With assistance by Amanda Wang, and Amy Li

(Updates prices throughout, adds chart and adds analyst comment in sixth graph.)
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