THE largest U.S. exchange-traded funds (ETFs) tracking Chinese stocks Friday sank on concern China’s equity markets will retreat after posting world-beating rallies as Chinese policymakers take measures to slow gains.

    The iShares China Large-Cap ETF, tracking Chinese mainland companies trading in Hong Kong, dropped 4.2 percent Friday in New York for the steepest decline since January 2014. The Deutsche X-trackers Harvest CSI 300 China A-Shares ETF tumbled 5 percent, the most in two months.

    U.S.-traded ETFs and stocks followed the FTSE China A50 Index futures lower after Chinese policymakers banned the margin trading businesses of brokerages from using so-called umbrella trusts and allowed fund managers to lend shares to short sellers, statements showed Friday.

    The changes follow advances of 23 percent in the Shanghai and Hong Kong stock indexes over the past month, the best performances among 93 major global benchmarks.

    “The policy intention is to slow the market growth,” said Clem Miller, an investment strategist at Wilmington Trust, which manages US$80 billion. The rally is “really leverage-driven, and the Chinese authorities are keen not to repeat some of the mistakes the United States had in terms of leverage a few years ago.”

    Investors have used umbrella trusts, which allow for more leverage than brokerage financing, to ramp up wagers on Chinese stocks. Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan (US$170 billion) Thursday. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest.

    Allowing funds to lend their stock holdings will expand the pool of equities available to short sellers, who have relied primarily on brokerages to supply them with the stock needed to execute the bearish bets.

    The US$7.4 billion iShares China Large-Cap ETF sank to US$50.03, erasing a gain for the week. Deutsche Bank AG’s US$1.2 billion fund, the biggest in the United States tracking mainland stocks, tumbled to US$44.48. FTSE China A50 Index futures for April delivery tumbled 6 percent.

    (SD-Agencies)