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[HONG KONG] Chinese stocks capped a volatile week of trading with a second day of losses amid concern that nation's world-beating rally has gone too far, too fast.
PetroChina Co, the nation's largest company by market value, dropped 2.3 per cent. Evergrande Real Estate Group Ltd, China's third-biggest developer by assets, sank 27 per cent in Hong Kong after raising HK$4.6 billion (S$800 million) below a marketed price range. Jiangsu Broadcasting Cable Information Network Corp rose by the 10 per cent daily limit, taking gains since its initial public offering on April 27 to more than 1,000 per cent.
The Shanghai Composite Index lost 0.2 per cent to 4,611.75 at the close, after swinging between gains of as much as 1.7 per cent and losses of 4.1 per cent. The gauge tumbled 6.5 per cent on Thursday after brokerages tightened lending restrictions and the central bank drained cash from the financial system, while the gauge's 10-day volatility index climbed to the highest level since January.
"The market is likely going to experience massive volatility," said Gerry Alfonso, a Shanghai-based director at Shenwan Hongyuan Group Co. "People are getting nervous and having some very short time frames for investment. This has all to do with swings in the mood of retail investors."
The Shanghai Composite lost 1 per cent for the week. Thursday's rout ended a seven-day, 15 per cent surge for the gauge that saw it almost crossing with the 5,000 level for the first time in eight years. The index is still up 126 per cent over the past year, the biggest advance among major global benchmark indexes tracked by Bloomberg, and added 3.8 per cent during May.
Hong Kong's Hang Seng China Enterprises Index fell 0.6 per cent Friday, while the Hang Seng Index slipped 0.1 per cent. The CSI 300 Index rose 0.1 per cent.
A gauge of energy companies dropped 1.5 per cent, the most among 10 industry groups on the CSI 300 index. Gauges of health- care and technology shares rose at least 2.4 per cent.
Evergrande slid after the company raised HK$4.6 billion net proceeds from a sale of 820 million shares at HK$5.67 each, according to a filing to the stock exchange Friday. The price represents an 18 per cent discount to Evergrande's last close.
Combined turnover in Shanghai and Shenzhen rose to a record US$380 billion amid the rout on Thursday, exceeding the value of shares traded in the US on Wednesday by US$132 billion.
The use of borrowed money is exaggerating market declines, and losing days on the Shanghai exchange this month have been deeper than at any other time since 2009. At 1.65 per cent, the gauge's average retreat on down days this year is the largest among the world's top 10 markets. It's also bigger than the mean move of 1.44 per cent when the index gains.
"When a market is boosted mostly by leverage, this is expected," said Michael-Douglas Lee, a Hong Kong-based trader at SG Securities Ltd.
Outstanding margin debt in Shanghai climbed to a record 1.35 trillion yuan (S$293 billion) on Thursday.
More than one in five companies on the Shanghai gauge ended Thursday down by the exchange limit of 10 per cent, the most since the depths of the global financial crisis, according to data compiled by Bloomberg. A third of the 1,083 firms on the gauge fell about 10 per cent at some point, the level where bourse rules prevent further losses.