ASIA MARKETS: Chinese Shares Plunge 5.5% As Authorities Probe Brokers Over Violations
November 27 2015 - 3:41AM
Dow Jones News
By Chao Deng
Citic Securities, Guosen Securites both being investigated
Chinese authorities' investigations into two major Chinese
brokerages over suspected violations drove shares in Shanghai
sharply lower Friday.
The Shanghai Composite Index fell 5.5% to 3,436.30, the largest
daily percentage loss since Aug. 18.
The losses wiped out most of Shanghai's gains this month and the
index remains down 38% from a June peak.
The benchmark is still up 1.6% month-to-date, and up 14% from
its August low.
Hong Kong's Hang Seng shed 1.6%, putting it down 2.8% for the
week-to-date.
On Thursday, China's largest stock broker, Citic Securities Co.
(600030.SH), said it would cooperate with the country's stock
regulator in an investigation
(http://www.wsj.com/articles/citic-securities-probed-by-chinas-stock-market-regulator-1448537277)
of the firm for suspected violation of securities rules. Guosen
Securities (002736.SZ) , China's third-largest broker by assets,
said it is under investigation for suspected violations, too,
according to a company filing.
Citic fell by the 10% limit allowed by regulators in Shanghai,
and was 5.3% lower in Hong Kong. The stock is off 12.8% in Shanghai
and down 8.4% in Hong Kong for the week.
Guosen was also down at the 10% daily limit in Shenzhen on
Friday, off 6.4% for the week.
Shares of Haitong Securities (600837.SH) fell 3.8% in Hong Kong,
before the brokerage issued a trading halt after the market opened
without citing reasons. Analysts say that they suspect authorities
are investigating Haitong as well.
"Investors have concerns about who will be the next one"
targeted by authorities, said Wong Chi-man, head of research at
China Galaxy International Securities. "We only know [Citic and
Guosen] received notices of investigation but nobody exactly knows
what went wrong. With limited information, investors are finding it
difficult to quantify the impact. Therefore some may just trim
their position and stay on the sidelines first."
The Shanghai benchmark's losses worsen throughout the day,
falling as much as 6.1% in the afternoon session, as buying
momentum increased.
Chinese authorities' increased scrutiny of the securities
industry is part of a crackdown that has ranged from targeting
"malicious" short sellers to arresting star fund managers in the
wake of the summer stock rout. The Shanghai Composite Index, which
fell more than 40% from peak to trough during the summer, is now up
more than 20% from its August lows.
Analysts say officials' moves aim to drain leverage and
speculation from the market. Investors who borrowed heavily to buy
shares fed a yearlong rally through June, though the unwinding of
those loans also accelerated losses over the summer.
A two-month rebound in margin loans has stalled recently with
loans reaching 1.22 trillion yuan ($190.94 billion) as of Thursday,
according to Wind Information Co.
Loans fell below 1 trillion yuan in late September, when the
market's fall forced the unwinding of bets by brokerages.
Regulators also have said they are looking for signs of
irregularities in the industry. Earlier this week, the
quasi-regulatory Securities Association of China said Citic
overstated its swap transactions numbers between April and
September.
"The government wants to foster a stock market that can support
the real economy, not one that allows speculative investors to
profit from derivatives products," said Guotai Junan's analyst
Zhang Xin.
Elsewhere, Japanese shares fell 0.3% Friday after the Nikkei
neared the 20,000 level earlier this week. Australia's S&P/ASX
200 fell 0.2%, and South Korea's Kospi slipped 0.1%.
Markets in the U.S. were closed Thursday for the Thanksgiving
holiday.
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(END) Dow Jones Newswires
November 27, 2015 03:26 ET (08:26 GMT)
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