By Chao Deng
HONG KONG--A widening Chinese investigation into what officials
have deemed suspicious or illegal trading activity has put the
brakes on a rebound in the Shanghai Composite Index, wiping out
much of the market's November gains.
The index closed up 0.3% at 3445.40 on Monday, after tumbling
5.5% Friday, its largest daily percentage decline since Aug.
18.
It is up just 1.9% in November and 16% from its Aug. 26 bottom.
Earlier this month, the benchmark had risen more than 20% from its
August low, putting it in bull-market territory. It gained 10.8% in
October.
On Sunday, three of China's largest brokerages said they were
being probed by the country's securities regulator for suspected
rules violations related to the signing of margin-trading contracts
with customers. The practice of borrowing to buy stocks amplified
the Shanghai market's gains into June and losses during this
summer's rout.
The brokerages, Citic Securities Co., Haitong Securities Co. and
Guosen Securities Co., revealed last week they were under
investigation, but they didn't provide a reason.
News of the probes triggered heavy selling in China on Friday,
leaving shares of some of the brokerages, including Citic
Securities, down by their daily trading limit of 10%.
While China's market has had a relatively steady recovery from
the summer, official efforts to weed out the crash's causes are
threatening to throw off shares again. The government investigation
has already ensnared star fund-managers and top brokerage
executives, which has sent a chill through Chinese financial
markets.
The Shanghai Composite was down as much as 3.2% intraday Monday.
Citic closed down 1.5% in Shanghai, while Haitong was down 8.9% in
Shanghai and Guosen shed 2.8% in Shenzhen.
"We could still see more volatility in the Chinese market, if
they widen the investigation" to include medium-size brokers, said
Bernard Aw, Singapore-based market analyst with brokerage IG.
"Reasonably, the investigations could continue for another one, two
months."
At the same time, the latest probe clarification on the three
securities firms is a positive for some investors, who feared the
companies had committed more serious violations--such as insider
trading--during the market crash.
China's smaller stock market, the Shenzhen Composite Index, up
0.9% on Monday, is up 9.4% this month.
Global markets largely shrugged off Friday's tumble in Chinese
shares, in contrast with some of the global reverberations in
August. U.S. stocks finished slightly lower in an abbreviated,
post-Thanksgiving session on Friday.
Earlier Monday, authorities fixed the onshore Chinese yuan at
6.3962 against one U.S. dollar, marking its weakest fixing level
since late August. The move came before the International Monetary
Fund is expected later Monday to add the yuan to its elite basket
of reserve currencies.
The onshore yuan, which can trade within 2% up or down from the
fix, was last at 6.3970 per U.S. dollar, compared with 6.3952 on
Friday. Earlier it traded at 6.3980, marking its strongest level
since Aug. 28.
The offshore yuan was last at 6.4288 to one U.S. dollar compared
with 6.4591 earlier this morning after buying by a large Chinese
bank, according to a Shanghai-based trader at a major local
brokerage. He said Chinese authorities are likely trying to keep
the offshore and onshore currencies within a reasonable gap ahead
of the IMF decision.
Elsewhere, Japan's Nikkei Stock Average rose 3.5% this month,
while Hong Kong's Hang Seng Index lost 2.2%. Shares in Australia
and South Korea were down 1.4% and 1.9%, respectively, over the
same period.
On Monday, the Hang Seng Index closed up 0.3%. The Nikkei and
S&P/ASX 200 were each down 0.7%, while South Korea's Kospi fell
1.8%.
The Nikkei continues to slip from 20000, a level it approached
last week with the help of a weakening yen. The benchmark last
closed above 20000 in late August.
The Japanese yen has lost about 1.8% against the U.S. dollar
this month. It last traded at Yen122.83 to one U.S. dollar, roughly
flat compared with Friday's levels. A weaker currency boosts
profits of the country's exporters when they repatriate revenue
from abroad.
Brent crude oil prices, the global benchmark, fell 0.4% to
$44.67 a barrel on Monday. U.S. crude-oil futures slipped 3.1% to
settle at $41.71 a barrel on Friday.
Gold was off 0.2% at $1054.40 a troy ounce in Asia.
Shen Hong contributed to this article.
Write to Chao Deng at Chao.Deng@wsj.com
(END) Dow Jones Newswires
November 30, 2015 03:29 ET (08:29 GMT)
Copyright (c) 2015 Dow Jones & Company, Inc.