Stocks dip amidWMPcurb con­cerns

Reg­u­la­tors aim to re­duce sys­temic risks in bank­ing in­dus­try

China Daily (USA) - - BUSINESS - By BLOOMBERG

Chi­nese main­land stocks slumped the most in six weeks as a re­port about pos­si­ble curbs on wealth man­age­ment prod­ucts added to con­cern that reg­u­la­tory ef­forts to re­duce risks in the fi­nan­cial sys­tem will limit flows into eq­ui­ties.

The ChiNext In­dex of small­com­pany shares sank 5.5 per­cent, the most since June 13, while the Shang­hai Com­pos­ite In­dex fell 1.9 per­cent. The Shen­zhen Com­pos­ite lost 4.5 per­cent.

China’s bank­ing reg­u­la­tor is con­sid­er­ing tight­en­ing curbs on the na­tion’s $3.6 tril­lion mar­ket for WMPs, the 21st Cen­tury Busi­ness Her­ald re­ported, cit­ing peo­ple it didn’t iden­tify. Au­thor­i­ties may set a limit on how much WMPs can in­vest in eq­ui­ties and “non­stan­dard as­sets” such as loans, the re­port said.

“There’s an ob­vi­ous trend that the reg­u­la­tors want to strengthen mar­ket mon­i­tor­ing and lower the use of lever­age in fi­nan­cial mar­kets to con­trol risks,” said Dai Ming, a fund man­ager at Heng­sheng As­set Man­age­ment Co. “Un­der such In­dex cir­cum­stances, ChiNext is es­pe­cially vul­ner­a­ble, given its high val­u­a­tion­sandthe re­cent gains.”

The China Bank­ing Reg­u­la­tory Com­mis­sion met some len­ders this month on the rule re­vi­sion and a fi­nal ver­sion hasn’t been drafted, the 21st Cen­tury Busi­ness Her­ald re­port said. The CBRC didn’t im­me­di­ately re­ply to a fax seek­ing com­ment.

China’s watch­dogs have sig­naled they are pay­ing closer at­ten­tion to the fund man­agers and bro­ker­ages who fun­nel the na­tion’s house­hold sav­ings into in­vest­ments from stocks to bonds and de­riv­a­tives.

TheChina Se­cu­ri­ties Reg­u­la­tory Com­mis­sion this month is­sued guide­lines curb­ing the use of lever­age by struc­tured as­set man­age­ment plans. Li Chao, vice-chair­man of the reg­u­la­tor, told a gath­er­ing of firms in the north­east­ern city ofHarbin last week to do bet­ter duedili­gence on prospec­tive clients and is­suers when ar­rang­ing ini­tial public of­fer­ings, sec­ondary share sales and bond is­sues, peo­ple fa­mil­iar with the mat­ter said.

The out­stand­ing value of WMPs rose to 23.5 tril­lion yuan ($3.5 tril­lion), or 35 per­cent of China’s gross do­mes­tic prod­uct, at the end of 2015 from 7.1 tril­lion yuan three years ear­lier, ac­cord­ing to China Cen­tral De­pos­i­tory & Clear­ing Co.

“The gov­ern­ment thinks tighter reg­u­la­tion is needed be­cause in­vest­ments from WMPs helped fuel the stocks bub­ble last year and then con­trib­uted to the crash,” said Larry Hu, head of China eco­nom­ics at Mac­quarie Se­cu­ri­ties Ltd in­Hong Kong.

“Some of them are just like black boxes, so nei­ther the gov­ern­ment nor the in­vestors know for sure which prod­ucts the banks in­vest the money in.”

the de­cline in the bench­mark Shang­hai Com­pos­ite In­dex on Wed­nes­day

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