Chinese stocks capped their steepest weekly retreat since April as surging money market rates reduced investor demand for the nation’s assets.
The Shanghai Composite Index slumped 3.4 per cent this week, ending Friday 0.2 per cent higher at 3,122.98 at the close. Property companies fell the most during the week, with China Vanke Co. plunging more than 9 per cent. A regulatory crackdown on insurers’ stock investments added to investor jitters. China Huishan Dairy Holdings Co. suspended share trading Friday after short seller Muddy Waters Capital LLC said the company is “worth close to zero.” The Hang Seng China Enterprises Index lost 0.1 per cent, taking its weekly loss to 4 per cent.
China’s sovereign bonds headed for the biggest weekly decline in two years as the central bank sought to force a correction in the highly leveraged debt market by steering money market rates higher. Home prices are also showing signs of cooling after cities rolled out measures to curb gains, while concern about a faster pace of U.S. interest-rate hikes is pressuring the Yuan, already at an eight-year low.
The Hang Seng Index slipped 0.2 per cent, taking its weekly loss to 3.3 per cent, while the Shenzhen Composite Index rose 1 per cent. Volume on the CSI 300 Index was 39 per cent less than its 30-day average, according to data compiled by Bloomberg.
“We are facing too many uncertainties,” including the U.S. interest rate outlook and capital outflows from China, said Steven Leung, Hong Kong-based executive director at UOB Kay Hian. “Before we see more firm views on these factors, investors will not simply jump into the market. Without too much liquidity in the market, it’s not easy to see a big rally — but the downside is still limited because the economic situation is still steady.”
The 10-year sovereign yield has surged 25 basis points so far this week, the most since December 2014, to 3.35 per cent on Friday. The one-year yield jumped 50 basis points, while the five-year rose 27 basis points. The Yuan is heading for the biggest weekly decline in a month.