Asian Shares: Gold Tumbles to More Than Five-Year Low, China Shares Fall

By Chao Deng 

        Gold prices tumbled to a more than five-year low Monday, and China shares drifted lower after authorities' weekend move to tighten the use of informal lending channels by stock investors.
        Gold fell 2.3% in a matter of minutes early Monday, after China's central bank reported on Friday its gold reserves were half the expected level, up 57% to 53.32 million troy ounces. China is one of the biggest gold buyers globally, and the report showed its central-bank holdings are the fifth-largest in the world. China doesn't consistently disclose its level of gold reserves.
        This latest signal of slackening demand tops a growing list of factors tarnishing the precious metal in recent weeks. Positive U.S. economic data, from home-building statistics to consumer prices, has firmed expectations the Federal Reserve will raise short-term interest rates later this year.
        Some analysts say that's also sparked selling among funds skeptical the metal will resume its decade long rally, which ended in 2011. Higher bond yields and a resurgent U.S. dollar diminish the appeal of gold, which produces no income and costs money to hold. Spot gold is currently trading at $1,106 an ounce.
        "This kind of sharp drop during early Asian hours is a strong indication that a big fund is selling their holdings of gold," said Gnanasekar Thiagarajan, director of Commtrendz Risk Management.
        Meanwhile, the Shanghai Composite Index was down 0.4% at 3940.15, after gaining 3.5% last week. It remains down nearly a quarter from its seven-year-plus high hit in June. The smaller Shenzhen index is up 0.1%, after jumping 7.6% last week.
        The Hang Seng Index was up 0.2% at 25354.70, after its first weekly gain in five of 2.1%.
        Beijing's efforts to prop up the market appear to have stemmed a slide that left markets with trillions in losses earlier this month. Still, investors are wary whether government measures--including easing rules on loans to buy shares, suspended trading of some stocks, cutting interest rates and halting initial public offerings--can sustain the momentum.
        On Saturday, the central bank issued guidelines on its website to regulate fast-growing Internet finance as part of efforts to address risks exposed by the recent stock market turmoil.
        Informal lending channels such as peer-to-peer lending, which directly connects borrowers and lenders, have played a major role pumping up the market--but also exacerbating its declines. Analysts expect more regulation could curb the market's gains in the short term.
        "Last week, many websites completely or partly closed down their informal financing business for stock investment," wrote Vincent Chan, analyst at Credit Suisse in a research note Monday. "The scale of informal financing may have already dropped by at least 20%. A continuous decline could be seen in the future months."
        Three Chinese companies providing peer-to-peer lending services--Miniu98.com, Xunqianwang and Quchaoguwang--said earlier this month that they will exit the business of providing "middleman services" for loans secured with pledged shares as collateral, each citing the China Securities Regulatory Commission's warnings against illegal trading.
        Official margin financing has been falling from record levels in June and was down to 1.43 trillion yuan ($230.24 billion) as of Friday.
        The number of companies allowing their shares to resume trading stalled late last week, although hundreds have already returned. That has helped unlock liquidity for investors who were hard-pressed to sell for cash. Foreign investors pulled cash out of mainland markets for nine days in a row, a streak that ended only Friday.
        Elsewhere, Australia's S&P ASX 200 is flat and South Korea's Kospi is down 0.1%. Japan's market was closed for public holiday.
        The euro traded at $1.0822 after hitting a near-two-month low of $1.8026 on Friday. Euro sentiment remains tenuous, though Germany's Parliament on Friday backed a rescue for Greece and eurozone officials completed plans to provide the country with EUR7 billion ($7.58 billion) of bridge financing.
        The U.S. dollar rose against several Asian currencies after the Federal Reserve kept alive hopes last week for raising interest rates this year. That has pushed some Asian currencies lower.
        South Korea's won hit a new two-year low against the dollar, continuing a slide that started in late April. The Singaporean dollar fell to a fresh three-month low against the U.S. dollar. The Japanese yen is at Yen124.14 compared with a previous close of Yen124.07.
        Brent oil traded at $56.93 a barrel from $56.96 Friday in Asia.
        In Hong Kong, brokerage Haitong Securities Co. said its first-half net profit and operating income more than tripled, thanks to a bull market in the January to June period. Shares were down 1.6% Monday.
        Anjie Zheng and Ewen Chew contributed to this article.
        Write to Chao Deng at Chao.Deng@wsj.com and Biman Mukherji at biman.mukherji@wsj.com
        (END) Dow Jones Newswires

        July 20, 2015 00:57 ET (04:57 GMT)

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