March 8, 2019 / 9:03 AM / 3 months ago

China shares tumble the most in 5 months amid signs of tighter regulation

* Shanghai index -4.4 pct, blue-chip CSI300 -4.0 pct

* Major insurer plunges after getting rare ‘sell’ rating

* Regulators sending signals to ‘cool’ market - investor (Adds quotes, background)

SHANGHAI, March 8 (Reuters) - China stocks suffered their worst day in five months on Friday, plunging about 4 percent as investors scrambled to take profit amid signs of tighter regulatory scrutiny after a recent market resurgence fuelled concerns of bubbles forming.

The blue-chip CSI300 index tumbled 4.0 percent, to 3,657.58 points, while the Shanghai Composite Index dropped 4.4 percent to 2,969.86 points.

Hong Kong’s benchmark Hang Seng Index lost 1.9 percent on Friday.

The losses for the two main China indexes were their biggest since Oct. 11, and came in heavy trading, with financial shares leading the decline.

Shanghai-listed shares of major insurer People’s Insurance Group of China (PICC) plummeted the maximum allowed 10 percent, after Citic Securities issued a rare “sell” rating on the stock, citing frothy valuation.

The brokerage forecast that PICC, whose shares doubled in just two weeks and rose the 10 percent limit in each of the previous five sessions, could slump by more than half over the next 12 months. Even after Friday’s tumble, PICC is still up 115 percent for the year.

“What we’re seeing is profit-taking after the recent surge. That’s very natural,” said Wen Xunneng, a Shanghai-based hedge fund manger.

But Wen remained upbeat on Chinese shares, saying “I don’t see big room for correction. Plenty of opportunities to make money ahead.”

Some analysts had warned a correction was near as indexes had been in overbought territory for weeks, despite signs the economy was continuing to weaken.

On Friday, sentiment was also dampened by poor February trade data and weak global markets.

China’s exports tumbled the most in three years in February while imports fell for a third straight month, pointing to a further slowdown in the economy despite a spate of support measures.

The China Securities Regulatory Commission (CSRC), at a news conference in Beijing, declined to comment on Friday’s market performance, but said it hopes more long-term overseas capital can invest in China’s capital markets.

Throughout Friday, investors dumped stocks amid signs of tighter regulatory oversight after the market rebounded over 20 percent this year on loose credit conditions and hopes for a Sino-U.S. trade deal.

“I suspect regulators are sending the signals to cool the market a bit,” said Stephen Huang, vice president of Shanghai See Truth Investment Management Co. “The market rise has been too hasty.”

The official Securities Times said on Friday China’s banking watchdog has punished two lenders for illegally channelling money into the stock market.

Also, China’s securities regulator said its Guangdong branch was closely monitoring grey-market margin financing and has banned brokerages from cooperating with shadow lenders.

In addition to the “sell” rating on PICC, another was issued on Friday, by Huatai Securities, for Shanghai-traded shares of China Securities. The stock also fell 10 percent.

Allen Wong, strategist at China Investment Securities (HK), also attributed the market slide to sluggish overseas market, after the European central bank indicated economic uncertainty ahead.

However, he said that the overall Chinese market is not yet in bubble, despite frothy valuations in some sectors.

“China’s easing policies would translate into economic improvements in the second half of the year, which will support the stock market.”

But if exports do not improve after February’s bracing number, worries about China’s economy are likely to increase.

“Today’s trade figures reinforce our view that China’s trade recession has started to emerge,” Raymond Yeung, Greater China chief economist at ANZ, wrote in a note. (Reporting by Samuel Shen and John Ruwitch; Editing by Richard Borsuk)

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