The CSI 300 Index of large-cap stocks closed down 1.3 percent, with ZTE Corp. and BYD Co. both falling the 10 percent limit in Shenzhen, while BOE Technology Group Co. slid 9.7 percent. Shanghai-listed liquor giant Kweichow Moutai Co. couldn’t maintain its brief foray into positive territory and closed down 1.4 percent, its seventh straight loss since state media warned it was climbing too fast. The stock has slumped 14 percent since Nov. 16.
“Institutional investors are choosing to cash in toward year-end as valuations are near historic highs and market sentiment deteriorated after official media targeted Moutai,” said Shen Zhengyang, Shanghai-based analyst at Northeast Securities Co. He said the market “lacks steam” for further gains.
The pace of the CSI300’s advance has picked up over the last six months and has outperformed the bank-heavy Shanghai A-Share Index. The institutional memory of the bubbly activity which contributed to the surge and collapse of the market in 2015 is still relatively fresh and the government does not want to see a repeat. That suggests some pressure may be coming to bear on the highest-flying shares, to instil some discipline among investors.
Kweichow Moutai accelerated to its recent peak near CNY700 and has now experienced its largest pullback since 2015. That represents a major inconsistency and suggests a peak of at least near-term and potentially medium-term significance.
BYD’s Hong Kong, H-Share listing, erupted out of three-year base in September and is now forming a first step above it.
ZTE Corp failed to sustain the breakout to new highs last week; suggesting ample supply above the October peak.
The Shenzhen B-Shares Index where the mainland versions of these shares are listed failed to sustain the move above 1200 earlier this month and is falling back towards the lows near 1100. It will need to hold that area if potential for continued higher to lateral ranging is to be given the benefit of the doubt.
The H-Shares Index continues to hold a progression of higher reaction lows and a sustained move below 11,500 would be required to check the advance beyond another short-term pause.