Chinese stocks tumble by over 2% after new regulations

Market - Himanshu Gill - Dec 12,2016

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chinese stocks tumble by over 2 after new regulations

Shares tumbled in China on Monday after a crackdown on purchases by insurance firms ahead of the much anticipated FOMC’s (Federal Open Market Committee) two day meeting that starts on Tuesday.

The Shanghai Composite Index (SHCOMP) dropped sharply by 67.6 points (2.09 percent) to 2,165.29, while the Shenzhen composite fell by 4.2 percent or 110.86 points to 523.32. However, markets elsewhere in Asia pared early gains due to a surge in oil prices. 

The insurance regulator of China announced last week that it will curb all the ‘barbaric’ stock acquisitions by insurers that sent shares in Shanghai and Shenzhen sharply lower at the beginning of this week. It banned insurer Evergrande Life from further investing into stocks, arguing that it had been conducting short term trading on the stock market.

The People’s Bank of China (PBoC) set its yuan midpoint at 6.9086 against the U.S. dollar, lesser than the previous fix of 6.8972. Yuan was trading at 6.9092 per U.S. dollar in the spot market, down 91 pips compared to the previous session close. The Hang Seng fell by 1.35 percent in Hong Kong.

This is the worst slump for Chinese stocks in the past six months on worsening concern about the outlook for the property market along with curbs on insurers’ investment on equity.

The sell-off was aggravated by signs of tighter liquidity in the banking system caused by a slump in the bond future contracts whose prices move inversely with yields. 

Growth stocks led Shenzhen-shares lower with the start-up stocks index falling 5.8 per cent to its lowest level in 6 months; moreover, the recent steep fall in LeEco's share price raised concerns over the valuation and growth prospects of those emerging shares. 

China is scheduled to release its November data in this week, providing details of money supply, industrial output and retail sales.