Mainland Shares Hit 2-Year Low in Hong Kong

Shares in Chinese companies listed in Hong Kong tumbled to the lowest level in nearly two years on Monday, with banks leading the way down as investors shrugged off signs of improved liquidity in China’s cash-squeezed financial system.

The Hang Seng China Enterprises Index was down 2.6% at 8,993.52 entering the midday break, after falling to the lowest level since October 2011.

n the black just three times since May 23, when HSBC Holdings HSBA.LN -0.91% released a survey indicating that China’s manufacturing activity contracted that month, for the first time in seven months. The HSCEI has fallen 19% from its May 22 close.

mainland-shares-hit

Shares in mainland banks were hit hardest on Monday even as the rate banks pay each other for short-term loans fell from a record-high reached on Thursday, when the rate on seven-day loans hit a staggering 28% Industrial & Commercial Bank of ChinaLtd. 601398.SH -2.99% was down 2.4% midday and Agricultural Bank of China Ltd. 601288.SH -3.50% was off 2.9%. Mid-sized lender China Minsheng Banking Corp. 600016.SH -9.95% had lost 6.4%.

A statement Sunday by China’s state-controlled Xinhua news agency indicated that government officials don’t intend to take action to ease conditions.

Jiong Shao, China strategist for Macquarie Securities in Hong Kong, said Monday that clients have been taken aback by the severity of the cash squeeze.

“People are saying, ‘Geez, is this the beginning of something really bad? Is China going to have a huge credit crisis?,’” Mr. Shao said. “That’s kind of what’s on people’s minds.”

The selloff in mainland companies’ shares is weighing heavily on the broader Hong Kong market, long a venue for foreign investors seeking exposure to China. The blue chip Hang Seng Index was 1.7% lower at 19,935.28 in morning trade, entering what could be its seventh-straight week in the red.

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