Growth doesn’t appear to be a major concern in China’s equity market. Both the manufacturing and services PMI’s released Nov. 29 show continued robust growth, and both came in at levels above consensus estimates.

The biggest losers in China H-shares during the past week are the life insurers, with the big four down between 5% and 7% during the past week. To put that in context: Ping An, the most aggressive and highly-levered of the group, more than doubled between the start of the year and Nov. 21 before falling back.

The pullback in the insurers is emphatically not due to tighter monetary conditions and higher bond yields. On the contrary, the insurers are the beneficiaries of higher bond yields, in China as in most other countries. Ping An’s stock price tracked the 10-year Chinese government bond yield closely during the past year, and its recent decline coincides with a fall in the bond yield.

Ping an
Source: Bloomberg

Apart from year-end profit-taking, the main concern in the market appears to be the possibility of regulatory pressure from the mainland on flows to Hong Kong. The surge in Hong Kong stocks during November coincided with a spike in mainland equity flows. November’s $10.3 billion flow from China was the largest since the equity investment channel from the mainland was opened in 2014.

Bloomberg reported Nov. 30, “This week’s wider pullback was triggered in part by concerns Beijing is growing uncomfortable with the large flows from the mainland into Hong Kong. China’s securities regulator has stopped approving mutual funds that plan to invest mainly in Hong Kong stocks, people briefed on the matter said earlier this week.”

In the medium term, China wants to foster two-way investment flows, as the inclusion of Chinese securities in global indices draws foreign investment into China and Chinese citizens have the opportunity to diversify into foreign assets. In the short term, though, Chinese regulators may want to moderate the pace of outflows.