Chinese Stocks Decline to Lowest Since October on Leverage Woes

(Bloomberg) -- Chinese stocks fell to their lowest level since Oct. 17 as an intensifying crackdown on financial leverage sapped investor sentiment.

The Shanghai Composite Index dropped 0.8 percent to 3,078.61 at the close, extending declines into a fifth week and falling below the key 3,100 support level. Consumer staples, industrial companies and small-cap shares led losses. The Hang Seng Index tracked a regional rally to rise 0.4 percent at the close, following better-than-forecast data on U.S. jobs and Emmanuel Macron's victory in the French presidential election.

A government crackdown to rein in financial leverage has strained Chinese assets, with the campaign erasing at least $453 billion from the value of stocks and bonds since mid-April. In the latest sign of increased scrutiny, the China Insurance Regulatory Commission said Sunday it would study setting up unified rules on equity ownership of insurers. Friday, the top equities regulator said it had found some securities companies still had a cash pool, which are banned and could accumulate liquidity risks.

“There's no sign that China's deleveraging is going to end anytime soon,” said Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai. “After falling below 3,100, the index may find some support around 3,000, but I wouldn't say that's a final bottom.”

China's exports rose 8 percent in dollar terms in April from a year earlier, less than the 11.3 percent increase which economists projected in a Bloomberg survey.

• On the mainland, industrial stocks were among the biggest decliners on the CSI 300 gauge. AVIC Aircraft Co. lost 9.7% and TBEA Co. slid 8.5%. The Shenzhen Composite Index closed down 2%, extending a five-day drop to 3.7%. The ChiNext small-caps gauge fell 1.6 percent to 1,788.71, the lowest close since February 2015.
• Sports companies advanced amid speculation that China will bid for the 2034 soccer World Cup, Aijian Securities Co. analyst Hou Yingmin said. Lander Sports Development Co. jumped by the daily 10% limit in Shenzhen, while China Sports Industry Group Co. climbed 2.9% in Shanghai. China Football Association denied the report of a bid.
• Muyuan Foodstuff Co. tumbled 9% in Shenzhen after the company said the average sales price for its hogs slipped 4.8% in April from March.
• Shanghai Phoenix Enterprise Group Co. rose 5.1% after saying Friday a unit has signed a strategic cooperation agreement with bike-sharing company Ofo Inc.
• Geely Automobile Holdings Ltd. led the benchmark higher in Hong Kong, rising 4.5%. CLP Holdings Ltd. and Sino Land Co. followed with gains of 1.5% and 1.4%, respectively.
• The Hang Seng China Enterprises Index advanced 0.6%, halting a five-day decline. New China Life Insurance Co. climbed 2.4%.
• Hong Kong's stock watchdog said trading in China Huishan Dairy Holdings Co. can't resume without its approval. The shares have been frozen since they tumbled 85% on March 24. The Securities & Futures Commission will need to give the go-ahead for any resumption of trading, under a rule that allows the market regulator to halt shares when there's evidence of misleading, false or incomplete information.

To contact the reporter on this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Ron Harui