China shares plunge on worries over policy tightening, foreign selling

Credit: REUTERS/ALY SONG

China stocks posted their biggest fall in more than five months on Thursday, as investors cooled down their buying spree on signs of policy tightening after the country's economic growth in the second quarter beat expectations.

Updates with analyst quotes, details

SHANGHAI, July 16 (Reuters) - China stocks posted their biggest fall in more than five months on Thursday, as investors cooled down their buying spree on signs of policy tightening after the country's economic growth in the second quarter beat expectations.

The Shanghai Composite index .SSEC closed down 4.5% at 3,210.10, while the blue-chip CSI300 index .CSI300 was down 4.81%, their largest drops since February 3.

The tech-heavy start-up board ChiNext Composite index .CNT slumped 5.9%, also its worst session since February 3.

Investors are taking profit from the bull run in the last two weeks that has priced in a rebound in China's economy, analysts said. Foreign investors are also turning to sell Chinese stocks on worries of deteriorating Sino-U.S. relations, they added.

China's GDP grew 3.2% in the second quarter, beating expectation, but domestic consumption and investment remained weak.

"Policy will remain supportive, but the pace of loosening may moderate given the strong credit expansion of the past months and the recent market surge," said Nathan Chow, economist at DBS Bank in Singapore.

While the direction of China's monetary easing remains intact, there is marginal tightening in the monetary policy, said Fu Yanping, analyst with China Galaxy Securities.

Fu said the increasing stake cuts announced by major shareholders and state funds, as well as recent heavy outflows via the Stock Connect dampened market sentiment.

Foreign investors cashed out of Chinese stocks at a record pace on Tuesday by selling a net 17.4 billion yuan through trading link-ups between Hong Kong and mainland, as worries about a possible decoupling of Sino-U.S. relation deepened.

There are also signs of regulators stepping up efforts including punishing illegal margin trading activities to contain hot money inflows into the stock market, said Western Securities analyst Cao Xuefeng.

Shares in Semiconductor Manufacturing International Corp (SMIC) more than tripled as they debuted on the Shanghai STAR market on Thursday.

Broad tech stocks, however, retreated as investors pocketed gains following the strong rally in recent weeks, with the CSI all share semiconductors and semiconductor equipment index .CSIH30184 tumbling 9%.

(Reporting by Zhang Yan, Luoyan Liu, Tom Westbrook and Andrew Galbraith; Editing by Alex Richardson and Shailesh Kuber)

((Andrew.Galbraith@tr.com; +86 21 2083 0079; Reuters Messaging: andrew.galbraith.thomsonreuters.com@reuters.net ; Twitter: https://twitter.com/apgalbraith))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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