China’s high-flying stock index falls more than 4 per cent in its biggest drop in five months
- Brokerages issue sell ratings on two Chinese stocks, triggering fears broader China markets are overpriced
- Concerns about global growth mount, hurting sentiment in China and Hong Kong
China’s high-flying Shanghai shares plunged 4.4 per cent on Friday – their biggest drop in five months – after brokerages issued sell ratings on two hot stocks, triggering worries about the strength of the world’s best-performing major market.
It was quite a dramatic slamming of the brakes.
The Shanghai Composite Index had run up eight weeks of consecutive gains, gone into a bull market in just 32 days, broken through a key resistance level -- 3,000 -- that had been there since June, and gotten a string of bullish calls as foreign money has poured in.
With Friday’s loss at 4.4 per cent, the Shanghai index closed at 2,969.86. Year-to-date gains fell back to 19 per cent.
“The market is worrying about a slowdown on the economy and, as the mainland market is up a lot, the government is going to slow down the speculation,” said Kenny Tang Sing-hing, chief executive of China Hong Kong Capital Asset Management, referring to the sell ratings issued by brokerages.
The CSI 300 of large caps dropped 3.97 per cent, to 3,657.58.
Huatai Securities cut its recommendation on CSC Financial – the best performer on the CSI 300 Index this year – to sell in a report dated Friday, saying its valuation far outpaces its growth potential and the stock is much more pricey than peers. That came just a day after Citic Securities, the nation’s biggest listed brokerage, recommended selling shares of the People’s Insurance Co. Group of China, saying the stock will drop by as much 54 per cent in the following year.
While only two stocks were focused on, it sparked fear among traders that the broader market is overpriced.
Meanwhile, Hong Kong’s Hang Seng Index fell 1.9 per cent to 28,228.42. Roughly half of its listings are of mainland companies. The Hang Seng China Enterprises Index lost nearly 2.65 per cent, to 11,156.82.
A Hong Kong stock that has racked up meteoric gains – China Ding Yi Feng Holdings – saw its trading suspended Friday. The city’s securities watchdog did not comment on why trading was halted in the stock that shot up 145 per cent in 2018.
Fresh warnings about global growth out of Europe weighed on sentiment throughout Asia.
The majority of major Asian markets were down. Tokyo’s Nikkei lost 2 per cent, while Seoul’s Kospi lost 1.3 per cent and Sydney All Ordinaries shed 0.9 per cent.
Overnight, the president of the European Central Bank, Mario Draghi, downgraded Europe’s economic outlook. Draghi said the euro-zone economy will expand only 1.1 per cent this year, a drop of 0.6 percentage points from the previous forecast just 3 months ago.
In the space of a few days before that, China cut its goal for domestic economic growth to the lowest in 30 years, the Organisation for Economic Co-operation and Development (OECD) lowered its global outlook over worse-than-expected impacts from trade tensions and political uncertainty, the US Fed president said the US will slow “considerably” this year, and the Bank of Canada dialled back expectations for policy tightening.
Adding to worries on Friday, Chinese exports crashed by 20.7 per cent last month -- the most in three years -- according to official data on Friday. The drop was much greater than expected, adding to fears of a widespread economic slowdown and the effects of the trade war. A poll of analysts by Bloomberg had predicted a 5 per cent decline.
Imports, meanwhile, shrank 5.2 per cent, much greater than Bloomberg’s poll predicting a 0.6 per cent slide. The country’s trade surplus narrowed massively, down to US$4.1 billion from US$39.16 billion, and well below the forecast of US$26.2 billion.
In other news, global index provider MSCI, which recently added new mainland stocks, said China should ease its caps on foreign-ownership on shares, to prevent more companies from being dropped from its benchmarks. The caps are 28 per cent for investors participating in the Hong Kong-mainland stock connects, but 30 per cent for QFII and RQFII programme investors.
Laser processing equipment company Han’s Laser Technology is to be deleted from MSCI’s Chinese indexes, effective March 11. It eked gains of 0.26 per cent to 42.55 yuan by close, after shedding 3.92 per cent on Thursday.
But there are no plans to lift limits, deputy chairman of the China Securities Regulatory Committee Fang Xinghai said on Thursday. A draft of a new foreign investment law is being submitted to the NPC for deliberation, according to Xinhua late on Friday.
Additional reporting by Zhang Shidong and Enoch Yiu
