China stocks plunge over 6% in late-selling frenzy on fears capital outflows will accelerate

An investor looks at screens showing stock market movements in Beijing.
An investor looks at screens showing stock market movements in Beijing.PHOTO: AFP

SHANGHAI (BLOOMBERG) - China's stocks tumbled to the lowest levels in 13 months on Tuesday (Jan 26) amid concern capital outflows may accelerate as the economy slows and after some of the nation's most-accurate forecasters predicted further declines for equities.

The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 6 per cent to 2,940.51 points, while the Shanghai Composite Index lost 6.4 per cent, to 2,749.79. By midday, both indexes had been down around 2 per cent.

PetroChina paced losses for energy producers, dropping 4 per cent as oil prices dropped below US$30 a barrel. China Coal Energy and Datong Coal Industry slid more than 5 per cent.

The Hang Seng Index lost 2.1 per cent, dragged down by financial and oil shares. The gauge slumped 13 per cent this year as the city's dollar peg came under pressure and short-term interest rates spiked.

Mr Huang Weimin, whose Chinese stock-index futures wagers returned more than 6,200 per cent last year, says the Shanghai gauge could drop another 15 per cent in the first half as slowing economic growth and a weaker yuan fuel capital outflows.

Outflows jumped in December, with the estimated 2015 total reaching a record US$1 trillion, more than seven times higher than the whole of 2014 based on Bloomberg Intelligence data dating back to 2006.

"The pressure for capital outflow and yuan's devaluation is still quite big," said Mr Dai Ming, a fund manager at Hengsheng Asset Management Co in Shanghai, adding that he's cutting equity holdings. "We haven't seen signs of a pick-up in the economy and the first and second quarters could be challenging."

The Shanghai index's 43 per cent rout since June has been accompanied by an economy losing momentum, similar to the global financial crisis, when the gauge lost more than two-thirds of its value from peak to trough over the course of a year. The index will bottom once it falls to 2,500 this year, said Mr Michael Every, head of financial markets research at Rabobank Group in Hong Kong. That represents a further 15 per cent decline from Monday's close.

Mr Thomas Schroeder, the managing director of Chart Partners Group who predicted in October that a rebound in Chinese stocks wouldn't last, says the Shanghai Composite will drop to 2,400.

Mr Huang, whose timely bets on the direction of share prices propelled his Yourong Fund to the top of the country's performance rankings, advised investors to sell shares as the stock market could come under pressure this year from both the economic slowdown and a potential surge in the supply of new shares. With 660 Chinese companies waiting to sell shares via initial public offerings, Mr Huang said the additional supply could divert funds from existing shares.

China's gross domestic product growth is seen slowing to 6.5 per cent this year, from last year's 6.9 per cent. The nation's top leadership has signaled in recent months it may tolerate further moderation as officials tackle delicate tasks such as reducing excess capacity, but nothing that could threaten President Xi Jinping's goal of at least 6.5 per cent growth through 2020.

Capital outflows increased to US$158.7 billion in December, the second-highest monthly outflow of the year after September's $194.3 billion, according to estimates compiled by Bloomberg Intelligence.

Trading volumes in Shanghai were 31 per cent below the 30- day average for this time of day. Margin traders reduced holdings of shares purchased with borrowed money for a record 17th day on Monday in Shanghai, with the outstanding balance of margin debt on the city's exchange falling to 573.1 billion yuan for the lowest level since Sept 30.