China's Equity Market Is Already Testing New Chief Regulator

(Bloomberg) -- A spell of panic in China’s tech hub showed the country’s equity market is still very nervy.

The Shenzhen Composite Index suddenly tumbled as much as 2.7 percent Tuesday morning, with shares of more than 20 companies dropping by the 10 percent daily limit that’s allowed by the exchange. While traders initially attributed the moves to criminal charges filed Monday by the U.S. against Huawei Technologies Co., the bulk of the declines only occurred about 30 minutes after the open.

The losses eased after China’s securities regulator dismissed a local media report that said newly-appointed Chairman Yi Huiman would prioritize the introduction of short-selling tools in 2019. The Shenzhen benchmark, punished because it hosts new-economy stocks that tend to command the loftiest valuations, ended the day down 1.1 percent. It’s still advanced 2.6 percent this month after a 33 percent rout in 2018, its worst year in a decade.

China's Equity Market Is Already Testing New Chief Regulator

The China Securities Regulatory Commission’s response gave some relief, KGI Asia Ltd. executive director Ben Kwong said. “Investors are usually worried about policy changes, so they’re a bit sensitive to market speculation. They will keep an eye on what kind of new measures will be announced after the change in the CSRC chairman,” he said.

Short selling gained a bad reputation in China after it was partly blamed for the market’s spectacular crash in 2015, with leveraged punters using index futures to bet against the entire market. Curbs put in place at the time largely shut out bearish speculators. China has been considering easing some restrictions since last year.

The U.S. decision to file charges against Huawei -- China’s largest technology company -- added fuel to the sell-off. The move increases tensions between the world’s two largest economies, which are already mired in a trade dispute that battered Chinese stocks last year. Optimism had been building that an agreement can be reached, with a Chinese delegation led by Vice Premier Liu He now in Washington for the latest round of high-level talks.

“The U.S. government’s accusations against Huawei are hurting tech and telecom stocks,” said Shen Zhengyang, a Shanghai-based strategist with Northeast Securities Co. “ChiNext and many Shenzhen-listed firms already faced earnings pressure thanks to the economic slowdown.”

Also greasing the losses was the Shenzhen Composite’s failure to hold above its 50-day moving average this week, a level that’s been a key resistance for most of the past year. Infotmic Co. and Henan Tong-Da Cable Co. were among stocks limit-down Tuesday.

©2019 Bloomberg L.P.