Update | China stocks cap steepest weekly drop in three months on Xinhua’s blasting of stock run-up in Moutai

Mainland China stocks fell for the fourth day, posting the worst weekly performance in three months, as an article by the state-owned Xinhua News Agency that singled out Kweichow Moutai for excessive gains in stock prices renewed concerns that the regulator will rein in speculation on stocks with rich valuations.

The Shanghai Composite Index dropped 0.5 per cent, or 16.34 points, to 3,382.91 at the close on Friday. It declined 1.5 per cent for the week, the most for the five-day period since August. The ChiNext gauge of growth companies tumbled the most since July, retreating 2.4 per cent. Hong Kong’s equity benchmark posted a third straight weekly gain.

Shares worth 643.8 billion yuan (US$97.1 billion) changed hands on the mainland’s two exchanges, the most since September 12, according to data compiled by Bloomberg. About 100 stocks fell by the 10 per cent daily cap on Friday.

Kweichow Moutai led the slump on Chinese distillers of fierce liquor after the Xinhua article, published after Thursday’s market close, said the share-price increase in the industry’s giant was too rapid and risked undermining the newly established pattern of value investing among investors.

The state mouthpiece also spooked small-cap stocks, which are three times as expensive as big blue-chip companies, as traders rushed to sell on fear of regulatory crackdown.

“Some of the stocks have risen at an overly fast pace and are showing signs of overheating,” said Wei Wei, a trader at Huaxi Securities in Shanghai. “The Xinhua article is simply a warning against over-speculation.”

Kweichow Moutai, which has already vaulted to the fourth-biggest stock on the Shanghai Composite Index, slid 4 per cent from a record high to 690.25 yuan, paring its gain to 107 per cent this year. The stock currently trades at its most expensive level since 2010.