Global Markets: China Stocks Fall as Deal Makers' Borrowing Probed -- Update

By Kenan Machado Features Dow Jones Newswires

Increased regulatory scrutiny over the borrowings of China's most prolific overseas deal makers weighed on mainland markets Friday, as trading elsewhere in the Asia-Pacific region was lackluster.

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The Shanghai Composite Index was down 0.7% in the morning session, following news that regulators had ordered banks to check their loans to major Chinese conglomerates like Anbang Insurance Group, Dalian Wanda Group and Fosun International. The Shenzhen main board was off 0.8%.

The companies' listed units tumbled late Thursday after the news, which inflamed investor concerns about tighter financial-market regulation at a time of volatile trading, analysts say.

"It is just the beginning--a sign that any move by the Chinese government can affect the markets," said Dong Yul Lim, a senior sales trader at CMC Markets in Singapore.

Fear of regulators had eased somewhat earlier in the week, in the wake of MSCI's decision to add China's domestically traded A-shares to its emerging-markets index next year, said Mr. Lim.

On Friday, the stocks of Wanda's listed film unit and Shanghai Fosun got some relief after the companies issued statements saying their business operations remain normal.

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"There are still uncertainties and I think it'd be best for the banking regulator itself to come out and clarify the policy," said Amy Lin, senior analyst at Capital Securities.

Elsewhere, Japan's Nikkei Stock Average rose 0.1% and Australia's S&P/ASX 200 was flat, while Singapore's Straits Times Index was off 0.3%. The city-state's industrial production and consumer prices data are due later in the afternoon.

In South Korea, shares outperformed after the country's president, Moon Jae-in, said he would lobby China to lift restrictions it imposed on his country's businesses following the installation in Korea of a U.S. missile-defense system that Beijing opposes. The installation prompted Beijing to target South Korean companies and stop tours of high-spending Chinese visitors.

The benchmark Kospi index was up 0.1% after earlier being as much as 0.5% ahead. Shares of major companies with China exposure were markedly higher, with Hyundai Motor up 1.9% and cosmetics giant Amorepacific rising 2.9%. Korean Air Lines rose 1%; Asiana Airlines, 0.3%.

In Japan, share gains narrowed from a strong open, following a preliminary survey showing that the nation's manufacturing activity slowed in June, with new orders growing at their slowest pace in seven months.

"Though the [purchasing managers index] fell rather sharply in June, it still points to a robust expansion in industrial output," said Marcel Thieliant, a senior Japan economist at Capital Economics.

Among key stocks in Japan, videogame maker Nintendo was up 2.2%, while auto makers Mazda Motor, Honda Motor and Nissan Motor added more than 0.5% each.

Air-bag maker Takata surged 45% on Friday, after dropping 50% Thursday, as reports circulated that the company will seek bankruptcy protection on Monday to minimize payments to creditors.

In Australia, the benchmark index's gains from mining and energy stocks were offset by selling in banking stocks, after one of the country's states proposed a tax on liabilities that would piggyback a recently launched federal levy on the biggest lenders.

Rio Tinto and BHP Billiton were up more than 0.9% each but a near-1% drop in the big banks' stocks weighed down the index.

"I get a sense that global investors are moving on from Australia, and this bank tax might just accelerate that trend," said Greg McKenna, chief market strategist at AxiTrader.

Shen Hong contributed to this article.

Write to Kenan Machado at kenan.machado@wsj.com

Global stocks were little moved Friday ahead of fresh readings on the eurozone and U.S. economies, while the British pound inched higher on the first anniversary of the U.K.'s vote to leave the European Union.

The Stoxx Europe 600 swung between small gains and losses shortly after markets opened, following a muted session in Asia. Futures pointed to a 0.2% opening gain for the S&P 500.

London's FTSE 100 edged down 0.4%, leading declines in Europe, as the pound climbed 0.5% to $1.2743, recovering from losses earlier this week.

The WSJ Dollar Index, which tracks the dollar against a basket of 16 currencies, was down 0.2%, while yields on 10-year Treasury notes were little changed.

Later Friday, business surveys are expected to indicate that eurozone economic growth picked up again in the second quarter but slowed in June. The U.S. Commerce Department also will release new home sales data for May and flash readings on the health of services and manufacturing.

Earlier, Shanghai stocks recovered to trade up 0.3% after increased regulatory scrutiny over the borrowings of China's most prolific overseas deal makers sent markets lower.

Japan's Nikkei Stock Average rose 0.1% despite a preliminary survey showing that the nation's manufacturing activity slowed in June.

"Though the [purchasing managers index] fell rather sharply in June, it still points to a robust expansion in industrial output," said Marcel Thieliant, a senior Japan economist at Capital Economics.

Air-bag maker Takata surged Friday, after dropping 50% Thursday, as reports circulated that the company will seek bankruptcy protection on Monday to minimize payments to creditors.

In South Korea, shares climbed 0.4% after the country's president, Moon Jae-in, said he would lobby China to lift restrictions it imposed on his country's businesses following the installation in Korea of a U.S. missile-defense system that Beijing opposes. The installation prompted Beijing to target South Korean companies and stop tours of high-spending Chinese visitors.

In Australia, the benchmark index's gains from mining and energy stocks were mostly offset by selling in banking stocks, after one of the country's states proposed a tax on liabilities that would piggyback a recently launched federal levy on the biggest lenders. The S&P ASX 200 was up 0.2%.

"I get a sense that global investors are moving on from Australia, and this bank tax might just accelerate that trend," said Greg McKenna, chief market strategist at AxiTrader.

Shen Hong contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Kenan Machado at kenan.machado@wsj.com

(END) Dow Jones Newswires

June 23, 2017 03:52 ET (07:52 GMT)