Wed. Apr 21st, 2021

By Luoyan Liu and Andrew Galbraith

SHANGHAI (Reuters) – China’s benchmark Shanghai Composite Index fell to the brink of a correction zone on Tuesday, as investors worried that regulators might move to rein in the market, even with inflation fears. May increase.

As of Tuesday, the Shanghai Composite Index had fallen 9.98% on February 18, embarrassed by a 10% decline that was commonly defined as an improvement.

Other key indices, including the blue-chip CSI300 index, are already firmly in the correctional arena. The CSI300 closed at the 4,970.99 mark on Tuesday, down 16.1% from an all-time high hit on 18 February. Shenzhen’s Chinext has fallen 24% in the same period.

Graphic: China’s major stock index slips in the reforms field – https://fingfx.thomsonreuters.com/gfx/buzz/jbyvraoorpe/China’s%20major%20stock%20indexex%20slumped%20into%20correction%20territory.jpg

Traders and analysts said investors are worried that liquidity could become even more tight as there are signs of slowing China’s economic recovery.

China on Friday set an annual economic growth target of more than 6%, much lower than the consensus of analysts.

Growth-oriented stocks globally have suffered in recent weeks due to rising concerns over inflation.

In China, the investor fears that authorities are eager to reduce liberal stimulus policies to pressure.

Consumer, healthcare, new energy and Hong Kong-listed tech firms, once chased by investors, have been hit hardest. Some have slipped into the market arena – a drop of 20% or more from recent highs – from sublime valuations.

The CSI300 Consumer Staples Index declined 2.3% on Tuesday, down nearly 30% from the peak hit on February 18, while the CSI300 Healthcare Index shed 3% and is down 26% from its peak.

In Hong Kong, the Hang Seng tech index, which includes tech giants Tencent, Alibaba and JD.com, fell 30% from the February 18 high.

Graphic: China’s consumer health and new energy firms as well as Hong Kong-listed tech players fall – https://fingfx.thomsonreuters.com/gfx/buzz/azgpodwwmvd/China’s%20consoler%20and%20new%20energy%20firms% 20as% 20as% 20as 20well% 20as% 20Hong% 20Kong-listed% 20tech% 20players% 20fall.jpg

A weaker yuan also put pressure on A-shares, as it could reduce Chinese equity’s appeal to foreign investors.

The Chinese yuan slipped to a 2-1 / 2-month low on Tuesday before recovering.

Graphic: China’s yuan is weakening against the dollar, shares have increased pressure – https://fingfx.thomsonreuters.com/gfx/buzz/xlbvgxrrpp//hina’s%20-02%20wensens%20against%20the%20dollar%20adding% 20pressure% 20to% 20tocks. Jpg

Foreign inflows into the A-share market via Stock Connect slowed in recent months and turned negative in March.

Graphic: Foreign inflows into the A-stock market slowed in recent months and turned negative in March – https://fingfx.thomsonreuters.com/gfx/buzz/xklpyreemvg/Foreign%20inflor%20into%20the%20A-share % 20market% 20market% 20% 20 %% 20 %% 20 months% 20 %% 20 %% 20 %% 20 %% 20 %% 20March.jpg

Domestically, lending margins for Chinese investors to buy shares also decreased from a five-year high, as liquidity conditions tightened.

Graphic: Chinese investors’ margin to buy shares decreased – https://fingfx.thomsonreuters.com/gfx/buzz/xegpbgnnjvq/Chinese%20investors’%20margin%20to%20to%20buy%20shares%20decreased%20as%20ondiquitation% 20ond% 20tightened.jpg

However, some investors are willing to hunt at cheaper prices, as shares in China and Hong Kong are less expensive than their global peers following the recent decline.

“Investors try to take the plunge after such a sudden slap,” said Liu Honming, a fund manager at Beijing-based Dingxin Huijin Asset Management Company.

He said the rally for once-high-flying sectors was probably over for now, and he prefers small and mid-cap firms with solid income growth and low valuations.

Graphic: Shares of China and Hong Kong Shaper Compared to World Peer – https://fingfx.thomsonreuters.com/gfx/buzz/qmypmrmmwvr/China%20and%20Hong%20Hong%20stocks%20remain%20cheper%20world%20world % 20peers.jpg

(Reporting by Luoyan Liu and Andrew Galbraith in Shanghai; Editing by John Stonestreet)

Copyright 2021 Thomson Reuters.

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