China shares suffer worst loss since March 4, Hong Kong in tepid Q1 finish

Thu Mar 28, 2013 4:51am EDT

* HSI -0.7 pct, H-shares -1.3 pct, CSI300 -3.3 pct

* China banks slump after regulator orders more checks on WMPs

* State Council pledges to further liberalise interest rates

* China property weak, policy curb details awaited

* HK has 1st quarterly loss in three, shut for 4-day Easter weekend

By Clement Tan

HONG KONG, March 28 (Reuters) - China shares suffered their worst loss in nearly a month on Thursday, as Hong Kong closed out the first quarter on a tepid note, with banks sinking after Chinese regulators ordered more transparency on wealth management products.

The move is aimed at warding off potential risks to the mainland financial system and comes after an instrument sold through Hua Xia Bank failed to pay its annualised return while China's CITIC Trust announced payment delay on its product late last year.

Banks were also put under pressure after China's cabinet said it will unveil new measures to further liberalise interest rate and exchange rate markets later this year, stoking worries of an erosion in banks' net interest margins.

The CSI300 of the leading Shanghai and Shenzhen A-share listings dived 3.3 percent to 2,499.3, holding above chart support seen at the March 19 low at around 2,492. The Shanghai Composite Index slid 2.8 percent.

The Hang Seng Index shed 0.7 percent to 22,299.6, coming off the highest close since March 18 it set on Wednesday. The China Enterprises Index of the top Chinese listings in Hong Kong shed 1.3 percent.

Losses came in the highest Shanghai volume since March 20 and exceeded its average in the last 20 days for the first time in five days. Hong Kong turnover was above average for only the second time in eight days, but was some 44 percent less than a Feb. 4 peak.

"The timing of the announcement caught the market by surprise, although people were already expecting the regulators to act," said Hong Hao, chief strategist at Bank of Communication International Securities.

"This is definitely not the lowest point of the market, I won't be trading at all if I don't have to. It's not even worth trying to catch a technical rebound in the near term," Hong added.

Thursday was the last day of trading for the quarter and the month of March in Hong Kong with markets shut for a four-day Easter weekend from Friday, reopening on Tuesday. Mainland Chinese markets stay open throughout.

Offshore Chinese markets suffered their first quarterly loss in three - the Hang Seng Index slid 1.6 percent and the China Enterprises Index fell 4.7 percent after a second-straight monthly loss in March. On the month, the Hang Seng lost 3.1 percent, while the China Enterprises Index dived 4.7 percent.

On Thursday, China Minsheng Bank tumbled 7.9 percent in Hong Kong after the China Banking Regulatory Commission singled out risks of investment in "informal debt assets", such as trust loans, letters of credit, accounts receivable and bank acceptance bills, among others, in a clutch of instruments that are broadly categorised in China as "wealth management" products.

Banks are now required to keep investments in such assets at no higher than 35 percent of total outstanding wealth management products, or no more than 4 percent of their total assets - whichever is the lower amount.

The aim is to bring these products back onto the balance sheet of banks, making it easier to track and monitor risks.

"We expect large banks to have lower WMP/asset ratio as well as less percentage of WMPs invested into non-standard credit assets than mid-size joint-stock banks," said May Yan, Barclays' top-rated China banking analyst, in a note on Friday.

Mid-sized Chinese banks were among the top drags on onshore Chinese indexes. Industrial Bank slumped the maximum 10 percent limit in Shanghai, Hua Xia Bank slid 6.2 percent and Ping An Bank tumbled 9.6 percent in Shenzhen.

China Minsheng Bank suffered its worst single-day loss in 4-1/2 years in Shanghai, diving 8.8 percent. It is now still up 22.5 percent on the year, compared to the 0.9 percent loss on the CSI300 index.

More Chinese policy cues, but from the property sector, could weigh on markets in the next few days as local governments release details of property sector curbs that Beijing first provided guidelines at the start of March.

China Vanke shed 2.6 percent in Shenzhen, while Poly Real Estate slid 2.4 percent in Shanghai and China Overseas Land lost 2.5 percent in Hong Kong.

The 21st Century Business Herald newspaper reported that Shenzhen, a city in the southern province of Guangdong, is likely to raise minimum down payment for second homes from 60 to 70 percent from April with the minimum mortgage rates kept unchanged.

UGLY EARNINGS

These latest government moves come after China's "Big Four" banks reported benign bad-loan ratios as brisk lending in fast-growing regions countered souring loans to overheated sectors on the country's east coast.

Shares of Industrial and Commercial Bank of China (ICBC) , which was the last among the "Big Four" to report their 2012 results on Wednesday, slipped 0.2 percent in Hong Kong and 2.7 percent in Shanghai.

According to Thomson Reuters StarMine, of the 76 percent of Hong Kong-listed companies that have reported 2012 results, more than half have missed expectations, with the energy and material sectors accounting for the bulk of disappointments.

Sixty-seven percent of China-listed companies have reported, with 72 percent missing expectations, with percentage disappointments in the industrials, materials, information technology and consumer staple sectors among the worst.

Aluminum Corporation of China (Chalco) dived 4.5 percent in Hong Kong and 4.3 percent in Shanghai after its 2012 net profit still came in worse than expected despite having earlier warned of a full-year loss in January.

But in a tentative sign of recovery, China's industrial firms made total profits of 709.2 billion yuan ($114.13 billion) in the first two months of 2013, up 17.2 percent from the same period of a year ago, the National Bureau of Statistics said on Thursday.

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