Shanghai shares hit 6-mth low as easing hopes dashed, Hong Kong suffers too

Wed Jun 19, 2013 9:53am BST

Related Topics

* Indexes: HSI -1.1 pct, H-shares -1.5 pct, CSI300 -0.7 pct

* Reported IPO resumption, property tax expansion hit A-shares

* Defensives slide in HK as investors await Fed outcome

* Mengniu spikes after $1.6 bln Yashili takeover offer

By Clement Tan

HONG KONG, June 19 (Reuters) - Shanghai shares closed at their lowest since mid-December, exerting pressure on Hong Kong markets on Wednesday, as a cash squeeze in the mainland worsened and official news reports further dampened hopes for policy easing.

Chinese growth-sensitive counters took some of the biggest hits. Most defensive names were also weaker as global markets awaited results of a U.S. Federal Reserve meeting. Word will come early Thursday Hong Kong-time.

The Shanghai Composite Index finished down 0.7 percent at 2,143.5 points, its lowest close since Dec. 13. The CSI300 of the leading Shanghai and Shenzhen A-share listings also lost 0.7 percent, off the day's troughs.

The Hang Seng Index ended down 1.1 percent at 20,986.9 points, its first decline since last Thursday. The China Enterprises Index of the top Chinese listings in Hong Kong shed 1.5 percent.

Turnover hit $8 billion in Hong Kong for the first time this week, in line with its average in the past month, but short selling accounted for 13.3 percent, the highest level in at least three months.

Shanghai volume was some 27 percent below its average as China's benchmark short-term funding cost hitting multi-year highs.

"It's a confluence of negative triggers today, but top on people's minds is that the PBOC has not loosened policy despite the cash squeeze," said Hong Hao, chief equity strategist at Bank of Communication International Securities, referring to the People's Bank of China.

"Everybody was looking for some easing this morning, but the Finance Ministry moved to auction bonds instead, draining more liquidity from the system," Hong added.

China's Ministry of Finance auctioned 30 billion yuan ($4.90 billion) of 10-year bonds in the interbank market at a higher-than-expected average yield of 3.4998 percent, traders said.

Everbright Bank shares in Shanghai fell 1.7 percent, paring some of a rebound from lows last Thursday. Last week, Central Huijin, China's main holding company for state-owned financial firms, increased its A-share stake in Everbright.

Huijin also upped its ownership in China's "Big Four" banks and New China Life Insurance as the broader market slumped to the lowest in six months. Also, the banks suggested the state investor will look to further increase its holdings in the next six months.

On Wednesday, China Construction Bank (CCB) fell 1.1 percent in Shanghai and 2.5 percent in Hong Kong. On the year, the stock is flat in Shanghai, down 12.7 percent in Hong Kong.

A front-page editorial in the official China Securities Journal said Beijing will not use higher money supply growth to boost economic growth. Traders took that as a sign that the central bank will not cut reserve requirements.

China property developers slid after the same newspaper reported that a property tax pilot programme may expand soon to include Beijing, Shenzhen, Nanjing and Hangzhou. Some cities might even apply taxes to existing homes, now exempt in pilot programmes in Shanghai and Chongqing.

In Shenzhen, China Vanke shares fell 2.4 percent to their lowest since Christmas. China Resources Land dived 3.3 percent in Hong Kong, making it down 1.7 percent in 2013.

The mainland market was also spooked by news reports suggesting regulators could resume the approval of listing applications as early as July, a move that could place a further strain on tight liquidity conditions.

QE TAPERING: WILL THEY, WON'T THEY?

In 2013, the CSI300 is down 4.8 percent, the Shanghai Composite 5.5 percent and the Hang Seng benchmark 7.4 percent, while the H-share index has dived more than 16 percent.

Losses deepened after U.S. Federal Reserve chairman Ben Bernanke jolted investors on May 22 - hitting defensive, high yielding counters - by saying the central bank might "take a step down" in the pace of bond purchases in coming months.

On Wednesday, Hong Kong property developers and utilities producers were broadly lower as global markets awaited results of the Fed meeting. New World Development fell 2.6 percent and Power Assets shed 1 percent.

Among outperformers, China Mengniu spiked 6.9 percent after the company announced a $1.6 billion takeover offer for a local infant formula maker, Carlyle-backed Yashili International.

The offer for Yashili follows an investment in Mengniu by French dairy group Danone, announced last month. Yashili's shares rose 3 percent in Hong Kong to lift 2013 gains to 68 percent. Both Mengniu and Yashili shares were trading for the first time this week.

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