Chinese stocks head for longest losing streak in 3 years on financial clampdown

The Shanghai Composite Index dropped 0.5 per cent to 3,065.24 as of 10:10am local time on Tuesday (May 9), in line for a sixth day of losses.
The Shanghai Composite Index dropped 0.5 per cent to 3,065.24 as of 10:10am local time on Tuesday (May 9), in line for a sixth day of losses. PHOTO: BLOOMBERG

HONG KONG (BLOOMBERG) - Chinese stocks fell on Tuesday (May 9), with the benchmark equity index heading for its longest losing streak since December 2013 as the government cracks down on leverage in the financial system.

The Shanghai Composite Index dropped 0.5 per cent to 3,065.24 as of 10:10am local time, in line for a sixth day of losses. Consumer staples and industrial companies led the declines. The Hang Seng Index was up 0.2 per cent, building on Monday's 0.4 per cent gain.

China is intensifying a campaign to clean up markets and reduce leverage. The China Banking Regulatory Commission said on Monday that banks should carry out collateral pressure tests at least once a year. Some Chinese rural banks suspended their interbank businesses temporarily while regulators conduct spot checks, Securities Times reported, citing unidentified people. Local government financing vehicles may face a tougher second half on tighter enforcement of regulations, S&P Global Ratings said.

The government's deleveraging efforts have led to a widening gap between China's two main offshore gauges. The Hang Seng China Enterprises Index is trading at its biggest discount to the MSCI China Index in 15 years - a split that investors see diverging further.