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Monday, July 17, 2017       14:27 WIB
Small cap plunge drags China stocks lower despite strong GDP growth

July 17, 2017 / 2:18 PM / 22 minutes ago

SHANGHAI, July 17 (Reuters) - Sharp drops in highly speculative small-cap stocks pulled China`s major stock indexes lower on Monday, offsetting stronger-than-expected economic growth data.

Fears of further policy tightening and a flood of supply from initial public offerings pulled benchmarks down by an unusually hefty 2 percent in early trade.

They briefly recouped the losses after data showed the economy expanded 6.9 percent in the second quarter, defying expectations for a slight loss of momentum.

But selling intensified again in the afternoon, with the blue-chip CSI300 index ending down 1.1 percent at 3,663.56 points, while the Shanghai Composite Index slid 1.4 percent to 3,176.46.

The tech-heavy start-up board ChiNext tumbled 5.1 percent to a 2-1/2 year low, posting its worst day in 2017.

"The game of story-telling in ChiNext is over," said Shen Weizheng, fund manager at Ivy Capital.

Nearly 500 stocks, most of them small firms, plunged the 10 percent trading limit, a rare scene this year as the authorities attached great importance to maintaining stability in the stock market.

In contrast to larger, state-owned firms, including major banks, which are being buoyed most by the strong economy, an increasing number of once-high-flying start-ups are floundering - a trend epitomized by Leshi Internet & Information Corp , which unveiled over the weekend it swung to a loss in the first half.

Investors also attribute stocks` diverging fortunes to policy messages from the fifth National Financial Work Conference held over the weekend, in which President Xi Jinping vowed to strengthen the Communist Party`s leadership in the financial sector.

Interpreting the conference, China Merchant Securities said in report that "the high-valuation bubble is bursting" as the pace of initial public offerings will accelerate.

Most sectors lost ground, led by real estate and industry shares, while gains in bank stocks , favoured for their improved profitability and low valuations, failed to lift sentiment.



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