Big small-cap slump drags down in­dices

China Daily (USA) - - BUSINESS | MARKETS - By CAI XIAO caix­iao@chi­nadaily.com.cn

Weak earn­ings per­for­mance of ChiNext shares, in fears of more pub­lic of­fer­ings

A sharp slump in China’s small­cap stocks pulled China’s ma­jor stock in­dices lower on Mon­day, off­set­ting stronger-than-ex­pected eco­nomic growth data.

A flood of sup­ply from ini­tial pub­lic of­fer­ings, the weak earn­ings per­for­mance of ChiNext shares and fears of fur­ther pol­icy tight­en­ing also added to the gloomy mood.

Data from the Na­tional Bureau of Sta­tis­tics on Mon­day showed that China’s gross do­mes­tic prod­uct ex­panded 6.9 per­cent year-on-year in the first half, which is well above the govern­ment’s tar­get for the year of 6.5 per­cent, re­flect­ing a firm­ing trend in the na­tion’s econ­omy.

Growth in June in­dus­trial out­put and re­tail sales also came in stronger than ex­pected.

The Shang­hai Com­pos­ite Index closed the day, how­ever, with a 1.43 per­cent drop to 3,176.46 points. The Shen­zhen Com­po­nent Index dropped even more, by 3.57 per­cent.

The ChiNext startup index tum­bled as much as 5.11 per­cent to a two-and-a-half-year low.

Nearly 500 stocks, most of them small firms, plunged to the 10 per­cent trad­ing limit, a rare oc­cur­rence this year as the au­thor­i­ties at­tach great im­por­tance to main­tain­ing sta­bil­ity in the stock mar­ket.

“Mar­ket reg­u­la­tors have em­pha­sized fi­nan­cial mar­kets should serve the real econ­omy, hint­ing at the pos­si­bil­ity that IPOs will con­tinue and ac­cel­er­ate,” said Hong Hao, chief strate­gist at BOCOM In­ter­na­tional Hold­ings Co.

“More sup­ply of stocks, mostly smaller caps, slower credit growth and a weak ChiNext earn­ings sea­son have all contributed to to­day’s plunge,”said Hong.

The coun­try’s fi­nan­cial reg­u­la­tors em­pha­sized the need to de­velop the di­rect fi­nanc­ing mar­ket to fund busi­nesses, show­ing that the pace of ini­tial pub­lic of­fer­ings will ac­cel­er­ate.

Therewere246IPOsintheShang­hai and Shen­zhen bourses in the first half of 2017, in­creas­ing 303 per­cent year-on-year, ac­cord­ing to ac­count­ing firm Price­wa­ter­house­C­oop­ers.

In con­trast to larger, State-owned firms which are be­ing buoyed most by the strong econ­omy, an in­creas­ing num­ber of once-high-fly­ing star­tups are floun­der­ing — a trend epit­o­mized by Leshi In­ter­net & In­for­ma­tion Corp, which un­veiled over the week­end it swung to a loss in the first half.

China Mer­chant Se­cu­ri­ties said in re­port that “the high-val­u­a­tion bub­ble is burst­ing”.

Listed firms with good busi­ness per­for­mances will con­tinue to be chased by in­vestors ... while ChiNext will con­tinue to find its bot­tom,” the bro­ker­age said, fore­cast­ing av­er­age earn­ings of ChiNext com­pa­nies will fall to “sin­gle-digit” growth from an ex­pected 25 per­cent this year.

China’s blue-chip SSE50 Index, also called China’s “Nifty Fifty”, in­creased 0.32 per­cent to 2631.41 on Mon­day, which was the high­est level in al­most two years. Reuters con­trib­utes to the story.

cor­rec­tion of the Shang­hai Com­pos­ite Index on Mon­day

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