China stocks slip as liquidity concerns weigh

SHANGHAI, Sept 19 (Reuters) – China stocks slid on Tuesday, with traders awaiting clues on U.S. monetary policy from the Federal Reserve meeting and as caution prevailed over potentially tight liquidity before the National Day holiday.

The blue-chip CSI300 index fell 0.3 percent, to 3,832.12 points, while the Shanghai Composite Index shed 0.2 percent to 3,356.84 points.

At a two-day meeting beginning later on Tuesday, the Fed is expected to take another step toward policy normalisation and announce plans to begin unwinding its $4.2 trillion portfolio of Treasuries and mortgage-backed securities.

China Investment Securities (HK) said it expects the Fed to “reduce its balance sheet gradually, thus, the initial impact on the capital markets would be limited”.

Investor risk appetite has also been curbed by a mixed bag of recent China economic data showing signs of a slowdown in some areas of the economy, such as fixed-asset investment, but resilience elsewhere, such as stronger-than-expected lending.

There are emerging concerns over seasonal liquidly stress toward the end of the third quarter, due to the week-long National Day holiday and central bank health checks on commercial banks.

China’s stock market, dominated by retail investors, usually succumbs to outflows ahead of long holidays as investors pull money out for consumption.

A type of three-week interbank borrowing rate rose to over 4.9 percent on an average weighting on Tuesday morning, the highest in three months, as the holiday starting on Oct. 1 approaches.

Most sectors lost ground, led by healthcare and infrastructure firms.

But real estate companies continued to outperform with a 1.7 percent gain, tracking the bull run in Hong Kong for domestic developers.

Analysts widely expect strong gains in Hong Kong to spur investors to seek bargains in mainland peers, as leading developer China Evergrande has rocketed nearly 500 percent so far this year.

China’s real estate investment growth picked up pace again in August as demand held up despite various government curbs. (Reporting by Luoyan Liu and John Ruwitch; Editing by Jacqueline Wong)

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