China stocks fell on Thursday as a growing number of brokerages tightened requirements on margin financing — an important engine behind a red-hot rally that has made Chinese share markets the best performers in the world.
The fall was also triggered by some profit-taking ahead of a new flood of initial public offerings (IPO) next week, which some analysts estimate could freeze up around 5 trillion yuan ($807 billion) of liquidity.
The CSI300 index fell 1.6 per cent to 5096.85 points by the end of the morning session, while the Shanghai Composite Index lost 1.4 per cent.
The losses weighed on Hong Kong, where the Hang Seng index dropped 1.5 per cent to 27656.68 and the Hong Kong China Enterprises Index lost 2.2 per cent.
On Thursday, at least three Chinese brokerages, including Guosen Securities Co, Southwest Securities Co and Changjiang Securities Co tightened margin financing rules to tame risks in the market, which has surged over 140 per cent over the last 12 months, fuelled in large part by a record amount of borrowed money.
Separately, the Shanghai Securities News reported on its website that regulators have recently urged banks to submit data regarding money flows into the stock market.
Tightening by brokerages is having a psychological impact on the market, which is already suffering from liquidity concerns ahead of the wave of IPOs next week, said Zhou Lin, strategist at Huatai Securities.
“It’s a normal correction. I think the negative impact on the market could be just short-term as we see a lot of money continuing to flow into the stock market,” he said.
“The government will likely continue to ease monetary policy, so the bull market will continue.”
