China StockManipulation Probe Spurs Concern on SmallCap Rally Bloomberg Business

Post on: 26 Апрель, 2015 No Comment

China StockManipulation Probe Spurs Concern on SmallCap Rally Bloomberg Business

A customer watches share prices on an electronic stock board at a security firm in Shanghai. The ChiNext index, which tracks smaller companies, slid 4.9 percent today, the most since Dec. 2, 2013. Photographer: Tomohiro Ohsumi/Bloomberg

(Bloomberg) — An investigation into stock market manipulation in China is spurring concern of further losses for shares of smaller companies after a benchmark gauge plunged by the most in a year.

The China Securities Regulatory Commission is probing companies and individuals involved in suspected market manipulation on 18 stocks and has set up a task force, the regulator said in a Dec. 19 statement on its microblog, citing an unnamed spokesman. Most of these stocks are small companies listed in Shenzhen, according to the statement.

The ChiNext index, which tracks smaller companies, slid 4.9 percent today, the most since Dec. 2, 2013. The Shenzhen Composite Index fell 3.6 percent. At least a dozen of stocks plunged by the daily limit of 10 percent.

“Investors should be wary of companies with weak fundamentals, especially after reports that the regulator is going to crack down on stock manipulation,” Zhang Yanbing, an analyst at Zheshang Securities Co. said in Shanghai today.

The securities regulator has joined state media in warning investors of the risks of a reversal after the Shanghai Composite Index’s world-beating rally in the past month. Investors must consider risks while putting money into stocks, the CSRC warned earlier this month after a buying spree drove daily stock trading turnover above 1 trillion yuan ($161 billion) for the first time.

The rush to pile into the rally in Shanghai has become so fevered that many investors are passing over identical shares that are trading more than 10 percent cheaper in Hong Kong. The surge in stocks is also drawing out skeptics who say the gains are amplified by borrowed money and don’t reflect the nation’s economic fundamentals. China’s economy is forecast to grow this year at the slowest pace since 1990.

Making Comeback

While market manipulation is showing some new characteristics this year, the practice involving groups of investors pumping up prices of certain shares and selling them in a short time “is making a comeback,” the CSRC said in the statement.

“Market manipulation severely damages the principal of being fair, righteous and open,” the regulator said. “It also hurts the interests of investors and is one of the common factors that trigger systematic risks in the market.”

Two calls to the CSRC spokesman’s office after regular business hours went unanswered.

ChiNext Valuations

The ChiNext, dominated by technology, drug and alternative-energy shares, has rallied 113 percent since the start of last year. The index of 100 stocks trades at 33 times projected 12-month earnings, compared with 11.7 times for the Shanghai Composite, according to data compiled by Bloomberg.

The ChiNext was created in 2009 as an alternative for smaller companies seeking to raise funds and has fewer listing requirements than the two main boards in Shanghai and Shenzhen.

Cloud Live Technology Group Co. Shanxi Baiyuan Trousers Chain Management Co. and Shandong Xingmin Wheel Co. which were among the 18 companies cited in the CSRC statement, slumped 10 percent today. Leshi Internet Information & Technology Co. the fourth-biggest stock in the ChiNext, which wasn’t cited by the CSRC, plunged 10 percent for its biggest loss since July 17. The stock has tripled since the start of last year.

“Reports that the regulator is cracking down on stock manipulation is impacting stocks that rose too much earlier, especially the small caps, so you see the ChiNext slumping today,” said Mao Sheng, an analyst at Huaxi Securities Co.

To contact the reporters on this story: Allen Wan in Shanghai at awan3@bloomberg.net ; Alfred Cang in Shanghai at acang@bloomberg.net

To contact the editors responsible for this story: Allen Wan at awan3@bloomberg.net Darren Boey

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