China stocks tumble 3% on tighter lending rules; blue-chip index sees worst drop in 1½ years

Chinese equities saw heavy losses Thursday following fresh liquidity rules within the country as well as as global investors opted for safe-haven assets like sovereign bonds.

The Shenzhen composite closed down 2.9 percent as well as the tech-heavy Chinext composite lost 2.77 percent. The Shanghai composite dropped 2.2 percent with the technology, consumer non-cyclical as well as health-care sectors recording the steepest losses on the day.

Meanwhile, the blue-chip CSI 300 index was down by 2.9 percent by the end of the day, its biggest one-day fall in percentage terms since June 13, 2016, according to Reuters. Hong Kong’s Hang Seng Index slipped by around 1 percent, a day after closing above the 30,000 mark for the 1st time in a decade.

Chinese firms have been under pressure since the government began tightening rules on lending. In particular, last week, banking regulators prepared a fresh set of rules to oversee the relationship between commercial lenders as well as their shareholders. Authorities have also introduced different measures, such as restrictions in loans to the shadow banking sector, as well as there can be a general view which China can be stepping up the deleveraging of its domestic economy.

Meanwhile, there were reports which the sharp fall was also due to firmer bond prices with the dollar also dropping overnight after the minutes via the Federal Reserve’s latest policy meeting. Thursday was also a weak day for stock trading across the entire world, with U.S. indexes as well as the Japanese Nikkei all closed for the session.

“I think the item’s to be expected which you have periods of some weakness coming through,” Richard Hodges, head of unconstrained fixed income at Nomura Asset Management, told CNBC Thursday.

Hodges can be bullish on global growth, saying which global economic markets are suggesting which we are going through a world of expansion. He said he was seeing “very little evidence’ which markets will actually start slowing.

“I think the item’s unwise to actually draw a conclusion via China as well as via the equity market given the performance which we have seen in global equity markets This kind of year,” he added.

—CNBC’s Cheang Ming contributed to This kind of report.

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