China stock traders befuddled by headline shocks as state-run media adds complexity to market policies

  • Days after being spooked by online gaming news, reports warned of risks associated with growth hormone and e-cigarette consumption among children
  • Liquor stocks and vaping-device makers saw big swings in stock prices in mainland and Hong Kong markets, overnight losses in New York

Stock traders in China are looking for some semblance of calm in trading after being spooked by a series of regulatory actions. Instead, they are being challenged by a slew of local media reports suggesting the storm is far from over.

Just days after a commentary by Economic Information Daily jolted online gaming stocks, two articles by the state-run Xinhua News Agency and a post by the Ministry of Science and Technology swayed sentiment and triggered another bout of volatility.

The Xinhua reports highlighted the harm of growth hormone to children and the hazard of electronic cigarettes to teenagers, rattling investors who fear the US$1.3 billion industry will be the next target of state scrutiny. The science ministry separately published a report citing a foreign research that linked alcohol consumption as a cause of cancer.

“After the last few weeks, even oblique warnings from authorities are ignored at your peril,” said Jeffrey Halley, an analyst at Oanda. “It seems that regulatory risk is alive and well in China still.”

A saleswoman demonstrates vaping at the Vape Shop that sells e-cigarette products in Beijing

Changchun High-Tech Industries, which produces growth hormone, tumbled by the 10 per cent daily limit in Shenzhen. China’s three biggest liquor distillers including Kweichow Moutai and Wuliangye Yibin fell by as much as 3.1 per cent. Smoore International, a maker of vaping devices, slumped as much as 7.8 per cent in Hong Kong before closing 1.9 per cent weaker.

Relx Technology tumbled 5 per cent in overnight US trading, a sharp reversal from a pre-trade gain of 15 per cent, after the Xinhua report alleged mainland sellers were lax in enforcing a ban on sales to minors without naming any company. Relx did not immediately respond to a request for comment.

Thursday’s episode underlines the edgy sentiment among investors who struggle to read between the lines in reports published by state-run news outlets, or separate market rumours from official guidance on market or industry policies.

Investors have remained highly alert and sensitive to headline shocks, particularly from publications affiliated to the government mouthpieces like Xinhua and the People’s Daily, since a crackdown on the nation’s technology and private education operators burned US$1.2 trillion of market wealth in onshore and Hong Kong markets last month.

These reports are not to be scoffed at. Chinese regulators are known to use the media under their control to test public opinions before major policy announcements. This week’s critique of online gaming as “spiritual opium” and “electronic drugs” erased US$60 billion from Tencent Holdings’ market capitalisation, before those references were retracted.

BCA Research recommends investors to shun Chinese stocks for now, saying regulatory overhang could induce more losses on equities as the pain threshold is yet to be fully tested.

“Some investors have opted to be on the sidelines because of the inability to predict the next step in regulatory tightening,” said Cheng Yu, a money manager at HSBC Jintrust Fund Management in Shanghai.

Authors: Zhang Shidong and Masha Borak, SCMP

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