Chinese shares slumped to 2021 lows on Monday as investor worries over the impact of government regulations slammed the education and property sectors and started concerns about the future of the independent oil refining sector.
The CSI 300 – which contains the top blue chips of China’s Shanghai and Shenzhen markets fell 3.2% to a level not seen since last December. It was down 4.4% at one stage and is now down more than 6% for the year so far.
The Shanghai market lost 2.4% (and is down 1% for the year so far) and Hong Kong’s Hang Seng shed close to 4% in value at one stage ended the day down 3.5%. The Hang Seng has lost close to 4% so far this year with most of that loss coming on Monday.
The falls dragged MSCI’s broadest index of Asia-Pacific shares outside Japan down 2.0% to its lowest since last December. Japan’s Nikkei did gain 0.9%, but that was off a seven-month low last Friday on fears about the start of the Olympics and the impact of Covid.
Media reports that China’s central bank (the People’s Bank of China) ordered lenders in Shanghai to raise the rate of mortgage loans for first-time homebuyers following a statement from the housing ministry on Friday that China will strive to clean up irregularities in the property market in three years.
Driving the losses has been a growing list of crackdowns in the past two months from the central government which have undermined cryptocurrency miners, internet companies like Alibaba and Ten Cent, whacked Didi, the ride sharing company for daring to list in the US, hurt the after-school tuition sector and again targeted property developers.
At the same time the government has railed against speculation and illegal trading of government permits, such as those oil quotas, targeted commodity prices for copper, aluminium, lead and zinc in a blitz of public criticism and worse – including arrests and detention of leading business figures.
And while doing this, attacked trading partners such as Australia (the US is strategic game over Taiwan and power) and tightened the screws on Hong Kong where activists and some business leaders have been jailed in what is approaching a campaign of harassment and terror.
So given that background, stockmarkets in China and Hong Kong have been sagging as local and foreign investors fear further arbitrary attacks and actions from the Communist Party directed mainland government.
Friday’s whacking of the after hours education sector (banning companies and others from making a profit) and the surprise lift in interest rates for first home buyers imposed in Shanghai proved too much and the main market indexes slumped heavily, wiping billions of dollars off share prices.
The sell-off saw Hong Kong-listed Scholar Education Group shares crashing more than 43% at one stage, while Hong Kong-listed shares in another tuition group, New Oriental Education & Technology Group Inc lost more than a third of their value after the company’s US listed shares plunged more 50% on Friday.
Reuters said Chinese and Hong Kong stock exchange sub-indexes tracking education and related sectors declined sharply. The CSI Education Index lost nearly 10% at one stage 9.73% and the Hang Seng Tech index slumped 5.89%.
The private tutoring business in China isn’t small beer – Reuters put a figure of $US120 billion on the value of activity in the sector. Last week’s policy changes also restricts foreign investment in the sector.
The crackdown on the trading of oil import quotas is curtailing the country’s oil imports and Reuters reported at the weekend that it could end up stop some private refineries and traders from growing in the next year or so – with growth switching to state owned refineries and trading companies.
Reuters reported that around $US1 billion worth of shares held by foreigners were sold on Monday morning in the wake of the crack down on private education and the move to impose penalty interest rates on hime loans in Shanghai.
Shares in China Evergrande Group fell 7% at one stage in the wake of the move by the central bank to push up home loan rates in Shanghai.
It is China’s most heavily indebted major developer whose financing difficulties have stoked broader apprehensions about the outlook for the property sector. Evergrande shares have fallen by a third this month on renewed fears about the outlook for Chinese property, and are down more than 54% this year.
Fellow developer Country Garden Holdings Co dropped 2.18%.
“We believe China’s economy, and specifically its financial system, will face significant risks in coming months due to the unprecedented tightening measures applied to the property sector,” economists at Nomura said in a note Monday, Reuters reported.
A shakeout in property has the capacity to trigger bad debts and loan losses across the Chinese banking system and among some of the country’s heavily indebted local and provincial governments.
