China Stocks Retreat the Most in 3 Weeks on Liquidity Jitters

China stocks fell by the most this month on concern that liquidity conditions in the financial system are not strong enough to support recent gains.

The CSI 300 Index lost 1.3% just two sessions after closing at its highest level in five years. The liquidity-sensitive ChiNext Index retreated 2.2% to its lowest since Oct. 23.

Investors have been worried the central bank will tighten monetary policy as the economy rebounds from the virus pandemic. Those concerns were compounded by recent corporate credit defaults at firms linked to the state, worsening a selloff in government debt last week.

“Neither the economic recovery nor liquidity conditions are strong enough to support a one-way uptrend so we’re seeing some selling in the year’s big gainers, like medical shares,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. “We need to see where domestic monetary policy goes next and what inflation is going to be like before we can see a new direction for stocks.”

China Stocks Retreat the Most in 3 Weeks on Liquidity Jitters

Chinese equities have been among the best performers globally this year, with the CSI 300 still up 20%. Most of its gains came over the summer, when the benchmark first touched five-year highs.

Subgauges of materials, consumer staples and health-care stocks were the worst performers among the CSI 300’s 10 industry groups on Wednesday, each retreating at least 2.1%. All of those gauges have surged at least 31% this year.

©2020 Bloomberg L.P.

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