Article / 25 August 2016 at 9:30 GMT

Regulatory fears have Chinese equity bulls running scared

Saxo Capital Markets China
  • Mainland shares decline on regulatory concerns
  • ChiNext index sees a late-day rally but still closes red
  • Beijing taking steps to rein in housing price gains

By Jay Luo

Chinese stocks closed lower Thursday on regulatory curb concerns. The benchmark Shanghai Composite index slid 0.57% after falling as much as 1.43% in the morning session. All sectors closed in the red except banking, steel, and brokerage shares. The ChiNext Index pared most of its early losses with a late-session rebound and ended the day 0.53% lower.

The benchmark index attempted to break above its 250-day moving average 
in the past eight trading days, but this ended in vain and the trading volume declined significantly.

ChiNext index:
Shanghai Composite Index, Daily

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Source: EastMoney
China’s leaders pledged to curb a developing assets bubble at last month’s Politburo meeting as more and more signs showed money flowing into financial and housing markets rather than the real economy. Since then, Chinese regulators have taken a series of actions.

It was reported that the China Insurance Regulatory Commission was considering implementing stricter regulations on universal life insurance. According to China International Capital Corporation Limited, about 600 billion yuan of funds need to leave equity markets within five years under the new rules.

The China Banking Regulatory Commission issued new regulations on peer-to-peer lending as an effort to curb risk in the "shadow banking" industry on Wednesday. According to the new rules, P2P platforms cannot take public deposits or create asset pools. 

Individuals and companies can only borrow a maximum of 200,000 and one million yuan respectively on a single platform.

China's central bank also sold 14-day repo agreements on Wednesday, the first time since February. Local analysts take this as a signal that the central bank will not cut interest rates or the deposit reserve ratio in the short-term and as a measure to curb the carry trade in bond markets. 

The People's Bank of China continued to inject 140 billion yuan into the market on Thursday.

As for the real estate market, Shanghai suspended auctions of four plots in the past week and it was rumoured that city's government was planning to adjust housing and land policies to rein in housing price gains. 

Stricter policy constraints are also expected in some other cities like Shenzhen and Xiamen.

China's big cities have long been paradise for real estate 
speculators, but officials fear a bubble. Photo: iStock 

— Edited by Michael McKenna

Jay Luo is an editor and analyst at Saxo Capital Markets in China


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