Chinese shares hit one-month closing low

Chinese stock market fell more than 2 percent on Wednesday to its lowest close in nearly one month, weighed down by lingering worries about credit tightening and an increased supply of new shares. The Shanghai Composite Index ended 2.14 percent lower at 3,816.165 points, after falling as much as 2.55 percent to an intraday low of 3,800.275.
"The market is in an adjustment phase right now. It is hard to say for certain exactly how the index will move," said Li Wenhui, analyst at Huatai Securities. He said the market was still digesting tightening measures unveiled last week and he expected modest volatility in the near term, but without the sharp swings seen last month.
Losing Shanghai stocks outnumbered gainers by 704 to 167. Turnover in Shanghai A shares was 71.5 billion yuan ($9.4 billion), down sharply from Tuesday's already thin 84.7 billion yuan and the lowest in four months. Turnover has shrunk to less than one-third of the daily record of 267.5 billion yuan hit on May 30.
The low turnover showed that investors were still cautious and had not regained confidence since the market's tumble last week on fears China would take steps to drain liquidity from the market, said Zhang Qi, analyst at Haitong Securities.
Investors panicked last Thursday and Friday, with the index slumping more than 6 percent over those two days, after the Ministry of Finance decided to issue 1.55 trillion bonds worth of special bonds, which analysts expected would divert funds from stocks.
Investors' fears eased somewhat, however, following a series of articles in state media saying that the bond issue should have no major impact on the stock market, and the index regained some of its lost ground on Monday and Tuesday.
NEW SHARES: The government is also accelerating its approval of initial public offerings (IPOs), which is dampening sentiment due to the prospects of an increased supply of shares in the market.
City lenders Bank of Nanjing and Bank of Ningbo said on Wednesday that they would launch IPOs of domestic A-shares next week. Analysts expect them to raise a combined $1.8 billion. Garment maker Youngor Group, which owns an 8.73 percent stake in Bank of Ningbo, fell 0.89 percent to 26.78 yuan after leading the index as the biggest mover earlier in the day.
The financial sector, which has a heavy weighting in the index, pulled the market lower, with China Life Insurance falling 2.86 percent to 40.82 yuan and Pudong Development sliding 4.49 percent to 34.28 yuan.
Analysts noted no news behind the sector's fall, although smaller banks may be undermined by the supply of new shares from the Bank of Ningbo and Bank of Nanjing IPOs. Baotou Aluminium extended its recent rally, jumping 4.59 percent to 30.76 yuan after its sister company Aluminium Corp of China Ltd (Chalco) said on Tuesday that it would buy the firm. But Chalco fell 7.35 percent to 22.18 yuan, after climbing 3.73 percent on Tuesday.
Real estate stocks were among the day's best performers, with Tianhong Baoye rising 4.03 percent to 36.44 yuan. The yuan has repeatedly hit post-revaluation highs in recent sessions, boosting the assets of domestic real estate companies.
The State Information Centre, a government think tank, said in a report published in the China Securities Journal on Wednesday that it expected housing demand to remain strong as China's real interest rates were negative. Beer and wine companies also performed well as they were expected to report strong interim earnings. Huangtai Wine jumped its 10 percent limit to 8.43 yuan.