Chinese stocks wilt amid worries about stiffer regulations

BEIJING/HONG KONG (REUTERS, BLOOMBERG) - Chinese stocks fell yesterday after Monday's sell-off as concern about tougher regulations continued to reverberate through the market.

Sunac China Holdings tumbled in Hong Kong after a local media report that banks are reviewing the company's credit risk.

The Shanghai Composite Index dropped 0.6 per cent at the midday break local time after falling 1.4 per cent on Monday, its biggest one-day retreat in seven months.

The tech-heavy start-up board ChiNext slipped 0.8 per cent after sinking 5.1 per cent on Monday, triggered by officials deciding to create a special committee to oversee the regulation and deleveraging of China's financial system over the next five years.

Sunac China plunged as much as 13 per cent. The company's proposed plan to buy Dalian Wanda Group assets triggered concern among lenders, Jiemian reported.

China's US$7 trillion (S$9.5 trillion) equity market has been under pressure this year from a deleveraging campaign and increasing investor concern about the health of smaller non-state firms, even as global shares rally to new records.

In the short term, mainland shares may continue to be under pressure "because deleveraging is likely to continue and supervision will further strengthen due to emphasis on preventing systemic financial risk", said KGI Asia executive director Ben Kwong in Hong Kong.

The ChiNext index of small-cap shares had plummeted on Monday after concerns about rising funding costs, corporate governance issues, liquidity pressures and tougher regulatory oversight had hammered firms on the Shenzhen gauge, with at least 15 falling by the 10 per cent daily limit.

"The slump in major indexes on Monday was mainly driven by sharp drops in start-up shares, as they forecast continued falls in profit growth, with heavyweight start-ups leading the profit decline," Haitong Securities said in a report.

In Hong Kong, the Hang Seng Index fell 0.2 per cent and the Hang Seng China Enterprises Index slipped 0.5 per cent.

A version of this article appeared in the print edition of The Straits Times on July 19, 2017, with the headline 'Chinese stocks wilt amid worries about stiffer regulations'. Print Edition | Subscribe