China: Stocks fall in Hong Kong as stimulus bets don't pan out

[SHANGHAI] Chinese stocks trading in Hong Kong fell for the first time in three days, after stimulus that had been speculated to come as soon as this weekend didn't materialize.

Financial and industrial companies led declines, with Citic Securities Co. sliding 2 per cent and China Railway Group Ltd dropping 3.4 per cent. Hong Kong Exchanges and Clearing Ltd., which jumped 3.6 per cent Friday on prospects of an announcement on the city's stock link with Shenzhen, lost 1.9 per cent. Technology shares fell in mainland trading amid concern new share sales will divert funds from existing shares.

Hong Kong's Hang Seng China Enterprises Index decreased 1.3 per cent to 13,804.51 at 9.44am, while the Hang Seng Index retreated 0.9 per cent. China Merchants Bank Co said the People's Bank of China would cut reserve-requirement ratios as early as this past weekend. Pressure has grown on the central bank to add to two cuts in reserve ratios this year after data last week showed exports and producer prices slumping.

"There was some disappointment that speculation such as reserve-requirement ratio cuts had not materialised," said Wei Wei, an analyst at West China Securities Co in Shanghai.

"The market is at a high level now so sentiment could be fragile and volatile. Investors seem to be more concerned about controlling risks."

The Shanghai Composite Index slipped 0.4 per cent to 5,148.18. The CSI 300 Index lost 0.1 per cent. Subscriptions for 25 A-share initial public offerings including Guotai Junan Securities Co. may tie up 6.68 trillion yuan (S$1.45 trillion) of liquidity starting Wednesday, according to the median estimate of six analysts surveyed by Bloomberg.

Funds to be locked up may be the highest since January 2014 when China resumed IPO approvals, according to China International Capital Corp and Guotai Junan.

MARGIN CURBS

The Shanghai gauge has surged 152 per cent in the past year on a record jump in margin debt and bets the government will lower borrowing costs. The measure is valued at 19.4 times 12- month projected earnings, the highest level since December 2009, according to weekly data compiled by Bloomberg.

Margin traders increased holdings of shares purchased with borrowed money on Friday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 0.7 per cent to a record 1.45 trillion yuan.

Brokerages should limit margin trading and short selling at no more than four times their net capital, according to revised draft rules posted on the China Securities Regulatory Commission's website on Friday, seeking public opinion. Brokerages must not lend to individual clients with average daily assets of less than 500,000 yuan over the 20 past trading days, the CSRC said.

CSRC Chairman Xiao Gang said the stock market will be "well supported" if China's economic growth stays above 7 per cent, China National Radio reported on its website, citing Dong Shaopeng, deputy chief editor of the Securities Daily.

BLOOMBERG