China stocks closed lower on Tuesday, dragged down by a sell-off of finance industry shares. The CSI300 index of the largest listed companies in Shanghai and Shenzhen fell 0.7 percent, to 3,225.79, while the Shanghai Composite Index lost 0.6 percent, to 2,999.36 points. The CSI300 Financial sub-index dropped 1.3 percent.
Analysts cited a variety of factors for the sell-off including Monday's central bank pension reform guidelines urging low cost finance for the elder care industry. Several said the biggest factor was ongoing concern about comments by central bank governor Zhou Xiaochuan on speculative capital and rising debt levels in the financial sector.
"Pension reform was very well forecasted and fairly vague," said Gilliam Hamilton, China analyst at the consultancy NSBO Research in Beijing. "On the other hand there's a build-up of concern on leverage in large commercial banks," he said, noting when the People's Bank of China governor says an issue needs to be dealt with, then it gets attention as senior officials "are usually quite reticent"."
On Sunday, Zhou said overall leverage in China's economy was relatively high and that greater attention must be paid to the matter. Financial shares, primarily brokerage and insurance stocks, led indices lower. Governor Zhou Xiaochuan's comments on Sunday about short-term funds came in the context of saying recent data showed an easing of capital outflows.
"There are several factors pushing financial shares lower today, but uncertainty over the meaning of Zhou Xiaochuan's comments for the equity market is one," said Zhang Gang, analyst at China Central Securities in Shanghai. Another is the guidelines on pension products jointly issued after the close of trading on Monday by the central bank and several top ministries.
The guidelines are intended to encourage financial firms to develop products for the elderly with long-term and stable yields to meet their pension needs. A value above 100 indicates Shanghai shares are pricing at a premium to shares in the same company trading in Hong Kong, and vice versa. The northbound quota for the Hong Kong-Shanghai Stock Connect, currently set at 13 billion yuan, saw net inflows of 1.25 billion yuan.
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