SHANGHAI (BLOOMBERG) - China's stocks fell, capping the benchmark index's biggest two-day loss this month, on concern valuations are outstripping earnings growth and a flood of share sales will lure funds from existing equities.
Industrial, telecom and technology companies, the best performers over the past year, led declines in Shanghai, while a gauge of mainland shares in Hong Kong was poised to enter a correction.
Trainmaker CRRC and Shenzhen InfoTech Technologies plunged by the 10 per cent daily limit, while phone-equipment maker ZTE slid 5.4 per cent. BYD tumbled 6.6 per cent in Hong Kong.
The Shanghai Composite Index fell 3.5 per cent to 4,887.43 at the close, extending losses to 5.4 per cent in the past two days.
The gauge trades near a five-year high of 19 times estimated earnings, below the level of 36 reached during the 2007 bubble, and in the same ballpark as the Standard & Poor's 500 Index's multiple of 17.
Benchmark money-market rates surged to a five-week high before 25 initial public offerings that may lock up the most funds since IPOs resumed in January 2014.
"It's really to the point where valuations are a concern," Sam Le Cornu, who oversees about US$3 billion in Asian equities at Macquarie in Hong Kong, said in an interview with Bloomberg Television. "If you look at some of the stocks now in the Shanghai market, I think they are heading toward the territory" of bubbles, he said.