Chinese stocks slumped, led by Shenzhen shares, as a warning by state media that one of the nation’s hottest stocks was climbing too fast triggered a selloff.

The Shenzhen Composite Index closed down 2.8 percent, its largest decline since July 17. Liquor makers and technology companies that had outperformed this year were among the biggest contributors to losses. In Shanghai, Kweichow Moutai Co. plunged 4 percent after Xinhua News Agency said shares in China’s biggest liquor maker should rise at a slower pace.

The unusual critique capped a week that saw a rout in sovereign bonds spill into the equity market amid concern about a government deleveraging campaign and faster inflation. For the week, the Shenzhen gauge fell 4.2 percent, its worst loss since May 2016. The Shanghai benchmark declined 1.5 percent.

“The Xinhua warning was the last straw,” said Ken Chen, a Shanghai-based analyst with KGI Securities Co. “Expectations of worsening liquidity conditions are also hurting stocks.”

Since a debt-fueled stock market bubble burst in 2015, wiping out $5 trillion of value, Chinese policy makers have acted to restrain excessive speculation in equities.

Among liquor makers, Wuliangye Yibin Co. slid as much as 5.3 percent in Shenzhen, the most since July 2016, and Luzhou Laojiao Co. fell 4.7 percent. The stocks, which have more than doubled this year, pared their losses to 1.8 percent and 2.3 percent, respectively, by the close. Analysts are bullish on Moutai, with the stock attracting 26 buy ratings, two holds and zero sells.

“Xinhua is concerned that a runaway rally in a heavyweight like Kweichow will hamper the stability of the overall market,” said Hao Hong, chief strategist at Bocom International Holding Co. in Hong Kong.

BOE Technology Group Co. and Hangzhou Hikvision Digital Technology Co., two of the best performers on the Shenzhen gauge this year, dropped at least 2 percent.

Stocks rose in Hong Kong, led by banks amid optimism over new shareholding rules. The Hang Seng China Enterprises Index closed up 0.7 and the Hang Seng Index advanced 0.6 percent.

Source:
courtesy of BLOOMBERG

by Bloomberg News

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