Hong Kong - A selloff in Chinese stocks deepened, with the benchmark gauge slumping the most in three months, amid concern authorities will step up measures to crack down on leveraged trading.
The Shanghai Composite Index fell as much as 1.9%, the biggest intraday loss since January 16, before paring declines to 1.8% as of 07:09. Industrial companies and material producers led losses. The ChiNext small-cap gauge headed for its lowest close since September 2015.
China’s authorities are taking advantage of a strengthening economy to reduce financial-system risk by tightening the screws on leverage.
The banking regulator said late on Friday it will strengthen a crackdown on irregularities in the financial sector, echoing comments by the securities watchdog just days earlier, while the top insurance official is being investigated on suspicion of “severe” disciplinary violations.
The Shanghai Composite has slumped 5% since closing at a 15-month high on April 11, the biggest loss among global gauges.
"Market sentiment has been damped by recent tightening supervision on all fronts such as the banking commission, insurance commission, securities regulator," said Ben Kwong, executive director of KGI Asia in Hong Kong. "They expressed concern about bubbles and credit defaults. The deleveraging process is still in progress."
The declines weighed on stocks in Hong Kong, overshadowing results in the French elections. The Hang Seng Index dipped 0.1%, while the Hang Seng China Enterprises Index erased an advance of 1.1%.
China is likely to take more deleveraging measures, Financial News said in a front-page commentary. The banking regulator has ordered local units to assess cross-guaranteed loans, according to a Caixin report.
Traders will be watching to see whether the Shanghai gauge pares losses to less than 1% by the close, as has been the pattern recently. The index has gone more than 80 trading days without a loss of more than 1% on a closing basis, the longest stretch since the market’s infancy in 1992.
"Investors had expected officials to give some kind of signal to soothe the market after the big falls earlier last week, but their hope came to naught, with regulators saying over the weekend that they want to continue tightening,” said Chen Yalong, an analyst in Shanghai at Northeast Securities.
Read Fin24's top stories trending on Twitter: Fin24’s top stories