Shares hit by profit taking and uncertainty over policies

Chinese equities posted their largest one-day loss in a month on Wednesday, with the CSI300 index of the leading Shanghai and Shenzhen A-share listings sliding 1.7 percent to 2,412.8 points.

The Shanghai Composite Index sank 1.5 percent and stayed under its 20-day moving average for a third straight session.

Analysts said that some investors took profits on recent outperforming shares, especially financial institutions (excluding banks), energy companies and cement producers.

China Shenhua Energy Co Ltd and China Coal Energy Co Ltd, the nation’s biggest coal producers, each declined about 2 percent. Worsening smog in many parts of the country has prompted government plans to curb coal consumption.

The politburo meeting on Dec 3, which traditionally foreshadows the Central Economic Work Conference, set the tone for maintaining stability while pushing for reforms.

The meeting called for expanding domestic demand, promoting new consumption growth drivers and fostering reasonable investment growth.

The meeting also noted the need to pay close attention to environmental management and protection, according to a report from Barclays Research.

Concerns over changes in economic policies that might be made during the CEWC, which started on Tuesday, could also be affecting investor sentiment, said analysts.

“Uncertainty over the economic growth target for 2014 may have a short-term negative impact on some shares,” said a note from Haitong Securities Co Ltd on Wednesday.

Economic targets decided at the CEWC are usually announced in March of the following year. Investors may expect a communique at the end of the meeting, which ends Thursday, to signal decisionmakers’ reform priorities for 2014.

While historically the economic growth target tends to be on the conservative side and actual growth has always exceeded the target by a wide margin, it has become clear that achieving 7.5 percent growth is no longer easy for the country, according to Chang Jian, economist with Barclays Research.

“The prudent monetary policy stance will likely be maintained, but tightening has already started,” said Chang.

The average seven-day interbank repurchase rate has increased to 4.5 percent from 3.8 percent in September and 4.3 percent in October. The 10-year government bond yield rose to a nine-year high of 4.7 percent in November.

Investors may also be reacting to yearend settlement transactions and the resumption of initial public offerings, but macroeconomic data is showing a positive trend, according to Sun Jianbo, analyst with China Galaxy Securities Co Ltd.

Innovations in the capital market and opening up will be long-term positive forces for the A-share market, Sun said.