Shenzhen stocks, China’s second-largest equity market sinks the most in three 10 months, emphasizing the increasing fragility of the nation’s financial assets.
The Shenzhen Composite Index sank as much as 6.1 percent, the biggest loss since Feb. 29. Traders pointed to concerns that regulators will accelerate the pace of initial public offerings, already at a 19-year high, diverting liquidity from existing shares. The Shanghai Composite Index dropped as much as 2.2 percent in minutes before paring losses amid speculated buying by state-backed funds.
The sudden drop comes at a volatile period for China’s financial markets, with the nation’s bonds having a record rout in December and surging funding costs squeezing yuan bears in Hong Kong earlier in January. There were 45 IPOs on China’s exchanges last month alone, the most since 1997.
The Shenzhen gauge cut declines to 3.6 percent at the close. The measure has lost 11 percent since foreign investors were allowed to buy the city’s shares through an exchange link with Hong Kong last month. The ChiNext Index of mostly smaller companies also fell 3.6 percent, while the Shanghai Composite lost 0.4 percent in a fifth day of losses -- its longest losing streak since August 2015.
The selloff is a reminder of a year ago, when the botched introduction of circuit breakers, a tumbling yuan and fears of an economic hard landing spurred a 23 percent plunge in the Shanghai Composite in January.
IPOs are a popular way to make money in China, even though the odds of partaking in one are one in 2,500. Mainland equities surged a median 392 percent in their first month after listing in 2016.