July 26, 2017 / 4:46 AM / a year ago

China stocks fall on regulatory fears, Hong Kong flirts with 27,000

* SSEC -0.4 pct, CSI300 -0.8 pct, HSI 0.0 pct

* China c.bank says will strictly regulate financial market trading

* China to turn all centrally owned giants into joint-stock firms by 2017

SHANGHAI, July 26 (Reuters) - Lingering fears of further regulatory tightening sent Chinese shares lower for a second day on Wednesday, even though most China watchers do not expect any major new clampdown ahead of a sensitive national leadership reshuffle in autumn.

The CSI300 index fell 0.8 percent to 3,689.09 points by the end of the morning session, while the Shanghai Composite Index lost 0.4 percent to 3,231.74.

Traders said investors grew wary after the country’s central bank pledged to strictly regulate financial market trading, and as the securities regulator vowed to maintain “normalisation” of new listings.

The central bank said on Tuesday that it would strengthen the regulation of internet finance as policymakers looks to control risks in what regulators have called “chaotic” financial markets.

While such statements are hardly new, they underscored the nervous market mood after top leaders recently reiterated they would press ahead with efforts to reduce risks in the financial system.

The market seemed largely unaffected by news that China will turn all big companies owned by the central government into limited liability firms or joint-stock firms by the end of 2017, which could potentially encourage more merger activity in the bloated and often inefficient sector.

“The reform plan will have limited impact for now, as those centrally firms are confronted with other problems including overcapacity, which could not be simply resolved by changing mechanisms,” said Yang Weixiao, analyst with Founder Securities.

Yang also expected the divergence between big-cap and small-cap stocks to continue, as better-than-expected economic data in the second quarter and supply-side reforms bode well for those sector leaders.

The start-up board index ChiNext slid 0.4 percent, after the securities regulator said it would maintain “normalisation” of initial public offerings and improve the mechanism for delisting shares from stock markets, without giving details.

China approved roughly 250 IPOs in the first half, mostly by small- and mid-cap companies, which investors say has contributed to a steady fall in share prices of small companies.

Most sectors lost ground in the morning, led by the defensive consumer and healthcare stocks , as investors took profits after a strong rally.


In Hong Kong, the benchmark Hang Seng index drifted little changed at 26,859.74 by the break, after briefly topping the 27,000-point psychological level in early trading.

Profit-taking ensued after that level was breached, resulting in broad weakness across sectors that offset a jump in energy stocks.

The benchmark index is on track for a seventh straight month of gains in July, its longest such rally in 10 years.

“People thought in July and August there would be a correction because the Hang Seng index had gained for six months straight. But contrary to market expectations the index has gone through the 27,000 level,” said Victor Au, a strategist at Delta Asia Financial Group.

“This is a big psychological barrier and people have started taking profits.”

There was softness in consumer cyclicals and technology shares, which were the leading gainers in the previous session.

Speakers maker AAC Technologies and technology sector giant Tencent Holdings were the biggest drags on the benchmark with their respective 3 percent and 0.5 percent declines.

Gaming business Galaxy Entertainment Group, down 1.5 percent, was also among the top losers.

Oil and gas explorers, however, benefited from a rally in oil prices and formed the top advancers on the benchmark.

Energy sector heavyweights like Sinopec, PetroChina, and CNOOC rose in a range of 2 percent to 3.3 percent.

The Hang Seng China Enterprises Index dipped 0.1 percent to 10,769.42.

Reporting by Luoyan Liu, Rushil Dutta and John Ruwitch; Editing by Kim Coghill

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