Chinese Shares Tumble as Oil Slump Exacerbates Drop on Crackdown

(Bloomberg) -- Chinese stocks sank in Shanghai and Hong Kong as concern over Beijing's efforts to reduce leverage in the financial system persisted and as a selloff in commodities spilled over into equity markets.

The Hang Seng China Enterprises Index led declines in Asia, sliding 1.6 percent at the close local time. Back on the mainland, the Shanghai Composite Index slipped 0.8 percent, taking its drop in the week to 1.6 percent and briefly breaking a key support level of 3,100 points. The gauge has fallen for four straight weeks, its longest run of declines this year. Energy producers slumped as U.S-traded oil slid below $45 a barrel for the first time since November, while materials and industrial companies also dropped.

China's ongoing campaign to cut financial leverage and clamp down on market irregularities has hurt investor sentiment. In the latest sign of increased scrutiny, the banking regulator started spot checks on lenders' investment, wealth management and interbank businesses, the Shanghai Securities News reported Friday. China should avoid “extreme cases,” such as cash crunches, as the authorities strengthen financial regulation, the government-backed Economic Information Daily said Friday.

Read more: China Ups the Ante in Bid to Quash Financial Risk: QuickTake Q&A

“There's no sign of financial regulation loosening,” said Zhang Haidong, a Shanghai-based fund manager with Jinkuang Investment Management. However, “the downside is limited as the market has been correcting for a while and many small-cap stocks have hit record low levels.”

The ChiNext small-caps gauge fell 1.1 percent. The Hang Seng Index declined 0.8 percent in Hong Kong, taking its weekly retreat to 0.6 percent.

• China Shenhua Energy Co. dropped 3.5% and PetroChina Co. slipped 2.4% for some of the worst performances on the H-share Enterprises index. PetroChina was down 17 percent from its January high.
• SJM Holdings Ltd. fell 4.5% in Hong Kong, its biggest decline since Dec. 9, as first-quarter earnings missed some analysts' expectations. Macau casino stocks are “no longer cheap” and some investors may take profit after gains, said CIMB Securities analyst Michael Ting.
• China Evergrande Group rose 0.9% after the company announced it redeemed 56.18 billion yuan ($8.14 billion) of perpetual instruments. The “positive” move may help justify Evergrande's share price, said Danielle Wang, a Hong Kong-based property analyst at DBS Vickers Hong Kong Ltd.
• Northeast Securities Co. and Sinolink Securities Co. fell at least 5.8%. Brokers in Shenzhen received notice from regulators that they must stop combining funds raised from various wealth-management products into a single pool and investing them as one portfolio, the Securities Times reported, citing people familiar with the decision. Investors worry the regulation on asset-management pooling in Shenzhen might expand to brokers nationwide, said Capital Securities analyst Liao Chenkai.
• Zhengzhou Yutong Bus Co. fell 1% in Shanghai to 19.70 yuan, its lowest close since Feb. 16, after the company said in a statement on Thursday that sales volume for April dropped 39%. Sales of new-energy vehicles fell 85% on year, below market expectations: said Credit Suisse analysts including Shelley Wang.
• Youzu Interactive Co. dropped 3.7% in Shenzhen, its biggest loss since March 8. The company's biggest shareholder Lin Qi pledged 15.5 million shares with Citic Securities Co. for financing, Youzu Interactive said in an exchange statement Thursday.

--With assistance from Amy Li

To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net.

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

With assistance from Amanda Wang