Chinese stocks dive as investors fear curbs on bank loans
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
China’s stock markets today suffered their biggest selloff in eight months on worries that the government wants to make easy money less easy.
The decline also spread across other emerging markets, which have been star performers this year as investors worldwide have boosted bets on a rebounding global economy.
The Shanghai composite index tumbled 171.94 points, or 5%, to 3,266.43, the largest one-day loss since Nov. 18. The smaller Shenzhen market slumped 5.8%.
In U.S. trading today, a popular exchange-traded fund of Chinese shares -- the iShares FTSE/Xinhua China 25 fund -- was off $1.64, or 3.8%, to $41.23 at about 10 a.m. PDT.
From Bloomberg News:
Stocks plunged amid speculation the central bank is poised to order lenders to set aside larger reserves, Beijing-based Caijing magazine reported today on its website. Market News International said Chinese equities fell on speculation regulators will increase a tax on stock trading. ‘Speculation the central bank may take steps to rein in liquidity worried the market,’ said Gabriel Gondard, deputy chief investment officer at Fortune SGAM Fund Management Co., which oversees about $7.2 billion in assets. ‘A lot of people were looking to take profit’ after the market gains.
The Shanghai index had been up 89% year-to-date through Tuesday as domestic investors poured cash into stocks. Analysts have warned for months that the government’s program to encourage bank lending -- a key element of China’s economic-stimulus plan -- was fueling heady speculation in stocks as some of the new loans were being used to gamble in the market.
‘Bank lending could be tightened in the second half of the year as new lending in the first half is already close to the full-year target,’ Li Jun, Shanghai-based strategist at China Central Securities Holdings Co., told Bloomberg.
One sign of the speculative frenzy for stocks: wild bidding last week for the initial public offering of China State Construction Engineering Corp., the country’s No. 1 housing contractor. The IPO raised $7.3 billion.
The stock began trading today and soared 56% for the session, despite the overall market slump.
The IPO valued the company at 51 times annual per-share earnings.
‘I can tell you no institutions are getting in at these levels, the valuation is just crazy,’ Chris Tang, chief investment officer at Marco Polo Pure Asset Management in Hong Kong, told Bloomberg.
Among other emerging markets today, Russia’s Micex share index fell 1.5% and the Indian market lost 1.1%. Brazilian shares are off 1.7% in midday trading.
-- Tom Petruno