Bond selloff jitters slam Chinese shares

Worries over a sustained bond selloff in China bled into the country’s stock markets on Thursday, dealing blue chips their worst one-day loss in nearly 18 months, as investors reacted to the government’s latest measures to reduce risks in the financial system. The yield on Chinese 10-year treasury bonds touched a three-year high of 4.03% on Thursday, traders said.

The unease comes as the government steps up its deleveraging campaign, most recently with measures aimed at curtailing micro-lending and imposing tighter regulation on asset management businesses.

The blue-chip CSI300 index tumbled nearly 3% to 4,103.73 points, its biggest drop since June 13, 2016, while the Shanghai Composite Index slid 2.3% to 3,352.99 in its worst day since December.

“For the short term, the biggest worry in the stock market is Beijing’s sweeping new rules to regulate the asset management business, which require financial institutions to set leverage limits on asset management products,” said Yang Weixiao, an analyst with Founder Securities.

In some sectors such as healthcare and consumer products, analysts said the concerns provided a good opportunity for profit-taking after long run-ups.

The CSI index is still up 24% so far this year, while the SSEC is up 8%.

The selloff in mainland China snowballed into Hong Kong, where the benchmark Hang Seng Index fell 1% after soaring above the 30,000 level on Wednesday for the first time in a decade. The China Enterprises Index lost 1.9%.

The yield on 10-year government bonds has risen nearly 40 basis points since the end of September.

A joint-venture fixed-income portfolio manager based in Shanghai said the bond selloff was the biggest adjustment for the market since 2010, though he suspected it won’t get too much worse.

“But people are still afraid of the regulation factor. The market still wants to reduce leverage and keep cautious,” he said. “I don’t think the government will save the market at this stage. It’s just balancing between economic growth and financial market health... (and) I guess the government or the regulators are still focused on building a more healthy market.”

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