Chinese stocks fell on concern a flood of new listings will overload the market, adding to Monday’s risk-off sentiment in emerging markets.
The Shanghai Composite Index slid as much as 3.1%, the worst among the region’s major benchmarks. The tech-heavy ChiNext Index — the first of China’s major indexes to enter a bear market — lost as much as 3.4%.
China said late Friday that its new trading venue will start operating on July 22, raising concern that the fresh supply will drain demand for existing stocks. Many companies open their books to investors this week.
“The correction in the market is likely due to some liquidity pressure as a series of new IPOs in the new science and technology board attract the attention of investors,” said Gerry Alfonso, director of the international business department at Shenwan Hongyuan Group Co. “In that scenario, the correction is likely to be short-lived as it could be considered as relocation of capital among listed securities.”
The tech board opening announcement came as strong U.S. employment data made traders reassess the likelihood of a rate cut from the Federal Reserve this month. That strengthened the dollar, leading to losses across Asia when the region’s markets reacted Monday. Hong Kong’s Hang Seng Index fell as much as 2%, the most since June 12.
Foreign investors are pulling out of the mainland, dumping 3.6 billion yuan ($523 million) of A shares via exchange links with Shanghai and Shenzhen, according to data compiled by Bloomberg. That’s already the biggest single-day sale since May 23.
A gauge of brokerage shares, a barometer of market sentiment, slid nearly 4%. Tech stocks weighed on the CSI 300 Index, with a sector index dropping 3.8%. Zhongjin Gold Corp. and Shandong Gold Mining Co. both lost more than 5%, as gold futures fell after the stronger-than-expected U.S. payroll gains.