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November 24, 2017

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Chinese shares tumble to suffer worst fall in nearly 18 months

CHINESE shares tumbled yesterday 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 percent, to 4,103.73, its biggest fall in percentage terms since June 13, 2016. The broader Shanghai Composite Index lost 2.26 percent to 3,352.99 points, its worst day since December.

Yields on sovereign debt and top-rated local corporate notes have climbed to the highest level in three years as a deleveraging campaign gathered pace. With more than US$1 trillion of local bonds maturing in 2018-19, it will become increasingly expensive for Chinese companies to roll over financing.

The yield on 10-year sovereign bonds rose above 4 percent on Wednesday, while yields on five-year top-rated local corporate notes have jumped about 33 basis points this month to a three-year high of 5.3 percent, according to data compiled by clearing house ChinaBond.

“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 China 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 percent and 4.1 percent, respectively, as investors pocketed gains after a strong rally this year.


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