China Stocks Fall on Last Day Before Link Start as Brokers Drop
Chinese stocks fell on the last trading day before the start of the trading link between Hong Kong and Shanghai amid concern recent rallies were excessive.
China Communications Construction Co. (601800) and ChinaCAMC Engineering Co. led declines for industrial companies with losses of more than 3 percent. Haitong Securities Co. slid 1 percent in Hong Kong, paring gains to 19 percent since mid-October. Energy and material shares also declined before data on money supply, new bank lending as well as foreign direct investment that may come today.
The Shanghai Composite Index (SHCOMP) fell 0.5 percent to 2,474.02 at 1:03 p.m., trimming this week’s gain to 2.3 percent. The 14-day relative-strength index, measuring how rapidly prices have advanced or dropped during a specified time period, was at 70.7 yesterday, the fourth day above 70. Readings above 70 indicate a price may be poised to fall.
“The market seems to be suffering from the ‘sell-on-the news’ mode given the exchange link has already pushed up share prices significantly,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “You cannot expect the index to keep rising by the same magnitude in the next month or two. The short-term correction has set in.”
The CSI 300 Index declined 0.1 percent. Hong Kong’s Hang Seng China Enterprises Index (HSCEI) lost 0.7 percent, while the Hang Seng Index added 0.1 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.2 percent yesterday.
Link Prospects
The Shanghai measure has risen 17 percent this year as funds flowed into Chinese equities ahead of the link, which starts Nov. 17. The program will allow a net 23.5 billion yuan ($3.8 billion) of daily cross-border purchases. China is counting on demand from foreign money managers to boost equity valuations, turn Shanghai into a global financial center and increase global use of the yuan.
The exchange link between Hong Kong and Shanghai will have a “good” debut even as technical hurdles such as access to offshore yuan may hinder a strong rally for stocks, Irene Chow, head of China equity research at the private banking unit of Credit Suisse Group AG in Hong Kong, said in a phone interview yesterday.
Chinese stocks will get a boost from the link and prospects of monetary easing to support the economy, she said. Credit Suisse has an overweight allocation on China’s stocks and a 12-month forecast of 12,200 for the Hang Seng China index.
Brokers Drop
The Shanghai index is valued at 9.2 times 12-month projected earnings, compared with the multiple of 6.9 for the H-share index, according to data compiled by Bloomberg. Trading volumes in Shanghai were 13 percent above the 30-day average for this time of day.
Soochow Securities Co. slid 2.9 percent and Guoyuan Securities Co. fell 1.9 percent. Brokerages have been rallying on speculation the link will boost their earnings. Moody’s Corp. said the connect program may generate an extra 5 billion yuan in industry sales.
China Communication Construction plunged 3.7 percent after jumping 45 percent over the past three weeks. China CAMC slid 4.6 percent, paring gains to 39 percent over the same period. Chinese infrastructure stocks rallied as President Xi Jinping pledged $40 billion to set up a Silk Road Fund that will finance the construction of infrastructure linking markets across Asia.
A gauge of material shares in the CSI 300 fell 0.8 percent for the biggest drop among the 10 industry groups. Rising Nonferrous Metals Share Co. lost 3.3 percent, while Jiangxi Copper Co. dropped 2.1 percent.
New yuan loans probably reached 626.4 billion yuan last month, while aggregate financing amounted to 887.5 billion yuan, according to the median estimates of Bloomberg surveys. That compared with 857.2 billion yuan for new lending and 1.05 trillion yuan for total financing in September.
Premier Li Keqiang said the country can achieve its 7.5 percent growth target this year amid emerging new momentum, according to transcript of his speech posted on the Xinhua News Agency’s website. The economy will continue to face downward pressure next year while the basics remain unchanged, he said.
Source: Bloomberg – China Stocks Fall on Last Day Before Link Start as Brokers Drop
