Stocks linked to railways led Hong Kong and China shares broadly lower on Monday after the worst train accident in the mainland since 2008 compounded continuing concerns over a potential United States default. The Shanghai Composite Index had its biggest single day fall in six months, 3.0 percent, and it closed at 2,688.8 points, the lowest level in a month.
In a clear bearish sign, the index broke below the 70-point range it has moved in for the last three weeks as turnover hit 120 billion yuan, almost 7 percent above the 20-day average. In the wake of the weekend's deadly train disaster, some investors dumped shares linked with rail stocks. The accident further weighed down markets already fragile after China's banking regulator said last Thursday it will strictly control risks associated with lending to property developers in second and third-tier cities.
"People are just very nervous right now. That probably explains why the market reaction is so exaggerated today," said Zhang Qi, an analyst with Haitong Securities. Railway equipment names accounted for the bulk of the 1.3 percent decline on the China Enterprise Index with China South Locomotive plunging more than 13 percent in volumes almost 12 times its 30-day average to hit its lowest in a year.
Its Shanghai listing lost almost 9 percent in almost 5 times its 30-day average volume. Its peer China Northern Locomotive lost 9.7 percent in more than four times its 30-day average volume to hit its lowest since last November. Property counters were also underperformers with the Shanghai property sub-index down 4.1 percent. Poly Real Estate was down 4.6 percent, its worst daily performance in six months.
A Credit Suisse report on Monday said developments in cities along new railway lines could be compromised in the near term after Saturday's high-speed train accident. The local government in Xinghe in Hebei province was reported in May this year to have illegally taken land from farmers for selling to developers at elevated prices. In Hong Kong, the benchmark Hang Seng Index closed down 0.7 percent at 22,293.3 points in declining turnover as many investors stayed on the sidelines, but there were no signs of panic selling.
With no signs of a resolution to the deadlock in Washington over the debt ceiling, turnover declined on Monday to HK$58.6 billion, almost 12 percent below its 20-day average. "A lot of people who were cashed up were expected to get back into the market this week partly to dress-up portfolios for month-end and partly ahead of earnings," said a trader at an Asian brokerage in Hong Kong. "The US news over the weekend seems to have delayed that, but there's no sense on the Street that we're about to blow up," he said. While railway-related names fell sharply, airlines, including Air China, China Southern Airlines and China Eastern Airlines saw solid gains in good volumes.