China shares tumble on bond rout, blue-chip index down most in 1-1/2 years

[SHANGHAI] Chinese shares tumbled on Thursday with the blue-chip index suffering its worst fall in nearly 1-1/2 years as worries about a selloff in the bond market bled into equities.

Consumer and healthcare firms led the fall and dragged the CSI300 index down sharply by 2.93 per cent, to 4,103.73, its biggest fall in percentage terms since June 13, 2016. The broader Shanghai Composite Index lost 2.26 per cent to 3,352.99 points, its worst day since December.

Treasury bond yields remained at multi-year highs despite above average cash injections by the central bank this as concerns that authorities would tighten lending rules took their toll.

"The government is stepping up deleveraging, and that would have an impact on liquidity in the stock market as well," said Yang Hai, strategist at Kaiyuan Securities.

"In micro-lending, for example, some people have borrowed money to bet on stocks. Some investors are now slashing their positions in expectations of a total ban of the business."

Policymakers announced draft guidelines restricting asset management products last Friday, and earlier this week Beijing unveiled new rules limiting micro-lending businesses.

Neither measure specifically targets stock market investing, but both are expected to reduce leverage, which could potentially dent stock market liquidity.

Sectors dived across the board, led by the defensive consumer and healthcare firms slumping 3.9 per cent and 4.1 per cent, respectively, as investors pocketed gains after a strong rally this year.

Ping An Bank fell 5 per cent, leading a retreat in banking sector, while New China Life Insurance slumped 4.1 per cent to weigh on financial shares.

The smaller Shenzhen index ended down 2.92 per cent and the start-up board ChiNext Composite index was weaker by 3.16 per cent.

REUTERS