Chinese Stocks Slide, With a Major Index in Correction Territory
By Joanne Chiu and Xie Yu
China's main stock benchmarks tumbled, erasing all of this
year's gains, as investors grappled with signs that policy makers
in Beijing will take more action to rein in debt and prevent asset
bubbles from forming.
The CSI 300--an index of the 300 largest stocks listed in
mainland China--fell 3.5% Monday while the Shanghai Composite Index
dropped 2.3%, hitting their lowest closing levels in 2021. The CSI
300 is now in correction territory, having declined more than 10%
from a recent peak on Feb. 10, just before the start of the Lunar
New Year holiday.
Chinese stocks have been trending lower in the past few weeks,
after an earlier run-up and stellar 2020 performance that was
underpinned by the country's return to economic growth during the
Top Chinese financial regulators recently warned about the risk
of asset bubbles forming in domestic real-estate prices and global
financial markets. Last week, Chinese leaders also indicated they
could renew their focus on curbing debt levels now that the economy
is on firmer footing. China was the only major world economy to
report growth in 2020; it expanded 2.3%.
At Friday's opening of the National People's Congress, the
annual session of China's legislature, the government said it is
targeting gross domestic product growth of 6% or more this year.
The new goal was lower than many economists' predictions that China
would expand by at least 8% and was taken by some as an indicator
that Beijing expects growth to moderate while it takes steps to
curb debt-related risks.
Chinese leaders also scaled back their targets for inflation and
the country's fiscal deficit, which "effectively makes room for
authorities to deliver policy to deflate the bubble to avoid
systemic risks," strategists from Citi Private Bank said in a
Monday research note.
Some of China's most valuable stocks led the recent declines.
Kweichow Moutai Co., a state-owned maker of high-priced spirits,
has lost nearly a quarter of its value since Feb. 10, when the
Shanghai-listed company was valued at around $500 billion. Shares
of Wuliangye Yibin Co., another producer of a fiery liquor known as
baijiu, have fallen by a similar magnitude. Both stocks are
components of the CSI 300 index.
Moutai, the world's most valuable liquor company, has in the
past been a target of Chinese authorities' attempts to cool
Conversely, shares of Ping An Insurance Group, which is also
part of the index, have chalked up gains over the past month.
Some of the earlier run-up in Chinese stock prices overall was
driven by large inflows into mutual funds, which have become
popular with investors on the mainland.
But after a significant increase in valuations, a lack of good
news coming out from the legislative meetings this month has given
investors pause, said Thomas Kwan, chief investment officer of
Harvest Global Investments, the offshore unit of one of China's
largest asset managers.
"A correction is easily triggered," he said.
Some money managers are currently holding more cash as they
await additional policy direction from China's central bank and
clarity over the economic growth outlook, said Gary Zhang, a
partner at Shenzhen Grand Gold Capital Co.
Wendy Liu, head of China strategy at UBS Global Research, said
she expects the longer-term upward trajectory of the CSI 300 index
to remain intact. The recent pullback is a consolidation of what
she called a "slow bull market" and creates opportunities for
investors to buy into companies with market-leading positions and
strong earnings growth. She added she still sees the broad
benchmark rising about 20% from current levels by the end of this
Write to Joanne Chiu at firstname.lastname@example.org and Xie Yu at
(END) Dow Jones Newswires
March 08, 2021 06:01 ET (11:01 GMT)
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