China blue-chip stocks down, growth and regulatory fears linger

SHANGHAI, July 3 (Reuters) – China’s blue-chip stocks fell
in thin trading on Monday, as investors were cautious at the
start of the mid-year earnings season amid lingering concerns of
an economic slowdown in the second half and monetary tightening.

The blue-chip CSI300 index fell 0.5 percent, to
3,650.85 points, with some industry-leading blue-chips
retreating from record highs after having rallied strongly this

The Shanghai Composite Index added 0.1 percent to
3,195.91 points.

The market has largely priced in an upbeat earnings season,
which starts on Monday.

As of June 29, 1,210 Chinese “A-share” firms had issued
guidance for interim results for 2017, and 72 percent of those
saw earnings growth, according to UBS Securities.

Growth guidance was particularly strong in sectors including
non-ferrous metals, electronics, property, light manufacturing
and chemicals, it said.

Although solid earnings help short-term sentiment, “we
reiterate our view that earnings growth could slow to 5 percent
in H2 and recommend investors to be more defensive,” wrote UBS
analyst Gao Ting, who warned that financial regulation will
likely remain tough.

Echoing concerns about liquidity, OCBC analyst Tommy Xie
cautioned that “it may be too early for the market to lower the
guard against regulatory tightening as we think financial
de-leverage remains a top policy priority for China.”

He said July will be another important month to monitor as
sizable loans made under the central bank’s medium-term lending
facility (MLF) will mature this month.

Small-caps outperformed blue-chips on Monday, with the SSE
50 Index, an index tracking the 50 most representative
blue-chips in Shanghai Stock Exchange, dropping 0.7 percent,
while the start-up board ChiNext was up 1 percent.

Sector performance was mixed. The defensive consumer
and healthcare stocks dragged the most,
while commodity shares rose on the back of higher
raw material prices triggered by recent dollar weakness.
(Reporting by Luoyan Liu and John Ruwitch)