Shanghai shares fell on Monday, dragging Hong Kong's market lower, amid expectations that access to funds may become harder as banks curb lending as the year winds down. Shanghai's key stock index, fell as much as 3 percent earlier in the day and closed down 1.4 percent as bargain hunting helped the benchmark recover some ground and end just shy of its 250-day moving average, a closely watched support level.
The slide on the mainland markets prompted a dip in Hong Kong's Hang Seng which closed down 0.3 percent. The China Enterprise Index of top locally listed mainland firms fell 0.5 percent.
"It is more or less an end of year phenomenon, when banks lend less, limiting access to cash of stock market players such as brokerages and mutual," said a senior trader at a private equity firm in Shanghai. The technical outlook for the Shanghai Composite Index and the Hang Seng Index remained weak, suggesting that both markets may struggle to rise in the near term.
Shanghai's benchmark failed to hold above the 2,923 level, the 38.2 percent retracement of its decline from the November high to the November low. "Any sizeable fund that was up 20 percent or so as of last month started locking in gains and at the moment there is little incentive to put in fresh money," said Larry Jiang, chief investment strategist at Guotai Junan Securities in Hong Kong.
Jiang said the Hang Seng's break below 22,800, the November low, was surprising but said he expected the index to rebound in the coming sessions. Retail-related stocks were out of favour among investors, with some seeing year-end profit-taking while sporting goods retailers such as Li Ning , which fell 16 percent, were hit hard by news of slowing sales. Li Ning rival I.T. fell 4.9 percent. I.T. shares have soared 289 percent this year.
Jewellery retailer Belle International, up 44 percent this year, fell 2 percent. Still, trading activity in Hong Kong remained light with overall turnover at HK$60 billion the lowest since early September. In Shanghai, investors dumped major liquor and wine makers, including Kweichow Moutai , which ended down 3.4 percent, after the recent run-up on the back of holiday season sales. Kweichow Moutai is up more than 15 percent this quarter.
Investors also sold commodity stocks after the dollar's recent rebound pushed prices of staple commodities lower, traders said. Top coal producer China Shenhua fell 2.3 percent and was the biggest drag on the overall market behind China Life , which fell 2.1 percent. On top of the year-end crunch, one official rate rise and three increases in bank reserve requirements by the People's Bank of China have also tightened liquidity conditions, with reserve hikes locking up more than 1 trillion yuan ($150 billion).