Eq­ui­ties in big slide to 2-month low

Con­cerns grow that real es­tate bo­nanza may put more stress on fi­nan­cial sys­tem

China Daily (USA) - - BUSINESS - By LI XIANG lix­i­ang@chi­nadaily.com.cn

Chi­nese main­land stocks tum­bled to a two-month low on Mon­day as in­vestors feared about mar­ket liq­uid­ity be­ing drained by the coun­try’s run­away prop­erty mar­ket, new share sales as well as the mon­e­tary author­ity’s in­ten­tion to curb fi­nan­cial lever­age.

The bench­mark Shang­hai Com­pos­ite In­dex fell by 1.76 per­cent to 2980.43 points, while the Shen­zhen Com­po­nent In­dex dropped by 2.05 per­cent to 10392.7 points. The mar­kets’ de­cline was mainly led by sales of de­fense, re­sources, trade and com­put­er­re­lated elec­tron­ics stocks.

The cool­ing stock mar­ket is in sharp con­trast to China’s over­heated prop­erty mar­ket, spark­ing fears that soar­ing hous­ing prices in some cities would pres­sure the eq­ui­ties mar­ket by chan­nel­ing cap­i­tal out of it.

“Cap­i­tal has fled the A-share mar­ket and flown into the red-hot prop­erty mar­ket and the Hong Kong stock mar­ket. Mar­ket liq­uid­ity is be­ing drained and there is lim­ited room for up­ward move­ment,” an­a­lysts at Founder Se­cu­ri­ties wrote in a re­search note.

Gao Ting, head of China strat­egy at UBS Se­cu­ri­ties, said that a hous­ing boom is in full swing and the signs of a resur­fac­ing hous­ing bub­ble have weighed on in­vestor sen­ti­ment.

“Credit-driven hous­ing booms are sus­cep­ti­ble to pol­icy shifts in China. If an­other hous­ing down­turn ma­te­ri­al­ized, it would put more stress on­the fi­nan­cial sys­tem, whose sta­bil­ity has long been a source of in­vestor anx­i­ety,” he said.

Some econ­o­mists also wor­ried that China’s soar­ing hous­ing prices could pose a chal­lenge to the value of the Chi­nese cur­rency and the eq­ui­ties mar­ket as in­vestors may be prompted to buy as­sets over­seas to pre­serve the value of their wealth.

Mon­day’s mar­ket de­cline also came af­ter the coun­try’s se­cu­ri­ties reg­u­la­tor on Fri­day ap­proved 12 ini­tial public of­fer­ings in the A-share mar­ket, which will raise an es­ti­mated 15.5 bil­lion yuan ($2.32 bil­lion).

Mean­while, the Peo­ple’s Bank of China on Mon­day pulled a net $37 bil­lion, the big­gest daily with­drawal in six months, from the in­ter­bank mar­ket through re­verse-re­pur­chase agree­ments. The move re­in­forced mar­ket spec­u­la­tion about the mon­e­tary author­ity’s in­ten­tion to curb ex­ces­sive credit growth and to lower fi­nan­cial lever­age.

“Tight er fi­nan­cial reg­u­la­tions on shad-ow bank­ing and other ar­eas in­clud­ing banks’ wealth man­age­ment busi­ness and in­sur­ance in­vest­ment in re­cent months, which could lead to fi­nan­cial delever­ag­ing over time, have been on the mind of A-share in­vestors for some time,” said Gao from UBS Se­cu­ri­ties.

Alain Bokobza, head of strat­egy for global as­set al­lo­ca­tion at French bank So­ci­ete Gen­erale said that the bank still sees virtues in ex­po­sureto emerg­ing­mar­ket as­sets as­the sta­bi­liza­tion of Chi­nese eco­nomic­growth could be a pos­i­tive fac­tor and the US Fed­eral Re­serve has re­frained from rais­ing in­ter­est rates.

“We pre­fer bonds to eq­ui­ties as real yields and the mon­e­tary pol­icy out­look re­main sup­port­ive,” he said.

We pre­fer bonds to eq­ui­ties as real yields and the mon­e­tary pol­icy out­look re­main sup­port­ive.” Alain Bokobza, head of strat­egy for global as­set al­lo­ca­tion at French bank So­ci­ete Gen­erale

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