China Stocks Fall Most Since July as FDI Slows

China’s stocks fell the most in two months after foreign investment data trailed economists’ estimates and money-market rates rose before the start of holidays this week.

Liquor maker Kweichow Moutai Co. (600519) plunged 5.6 percent, dragging a gauge of consumer-staples producers to the second-biggest loss among industry groups. Shanghai Pudong Development Bank Co. and Poly Real Estate Group Co. led declines for lenders and developers with a retreat of more than 3 percent. Shanghai International Port (Group) Co. dropped 10 percent after UBS AG downgraded the stock to sell. China Eastern Airlines Corp. tumbled 7.1 percent after surging 27 percent since Aug. 22.

The Shanghai Composite Index (SHCOMP) fell 2.1 percent to 2,185.56 at the close, the most since July 8. A report showed foreign-direct investment grew 0.6 percent last month, compared with the Bloomberg estimate of 12.5 percent growth. A gauge of funding availability in the banking system climbed as demand for cash increased ahead of local holidays.

“It’s pretty heavy profit taking after the recent rally and investors are using poor data as an excuse to sell shares,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages $120 million.

The Shanghai index has risen 12 percent since this year’s low on June 27 as data ranging from exports to industrial output showed growth is accelerating and as companies based in the city surged after the State Council approved a free-trade zone.

Chinese markets will close on Sept. 19 and 20 for the mid-Autumn festival and Oct. 1 to 7 for National Day holidays. The CSI 300 Index slipped 2.1 percent to 2,427.32 today. The Hang Seng China Enterprises Index retreated 0.7 percent. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. rose 0.4 percent yesterday.

‘Soft’ FDI

China’s non-financial foreign direct investment rose in August from a year earlier to $8.38 billion, according to the Ministry of Commerce. Foreign investment growth slowed from 24.1 percent in July. The Conference Board’s leading index for China climbed 0.7 percent to 269.3 last month from 267.4 in July.

“While the FDI figure is rather soft this, in my opinion, is not an indication that the economic recovery is weaker than expected,” said Gerry Alfonso, a trader at Shenyin & Wanguo Securities Co. in Shanghai. “FDI is becoming very volatile but the main driver on China’s economic growth is not any more foreign investment but domestic capital.”

A measure of consumer-staples producers in the CSI 300 slid 2.4 percent, the second most among 10 industry groups. Kweichow Moutai, China’s biggest liquor maker by market value, declined 5.6 percent to 141.30 yuan.

Financials Slump

“Sales of Moutai and other liquors are said to sell not very well ahead of holidays so these shares are being dumped,” Jingxi Investment’s Wang said.

Shanghai Pudong bank declined 5.7 percent to 10.83 yuan. Shanghai-based Bank of Communications retreated 3.5 percent to 4.41 yuan. Ping An Bank lost 3.1 percent to 12.79 yuan. Poly Real Estate Group, the second-biggest developer, declined 3.7 percent to 10.59 yuan.

China’s one-year interest rate swaps rose from the lowest level in a month, while the seven-day repurchase rate climbed eight basis points to 3.58 percent, according to a weighted average compiled by the National Interbank Funding Center.

The Shanghai measure is valued at 8.8 times its projected 12-month earnings, compared with the five-year average of 12.6 times, according to data compiled by Bloomberg. Trading volumes were 12 percent above the 30-day average, Bloomberg data showed.

Trade Zone

Shanghai International Port plunged by the daily limit to 5.87 yuan, paring a rally to 130 percent since Aug. 22, when the Ministry of Commerce said the city’s free-trade zone proposal had been approved in July. The shares were cut from buy at UBS, according to a note dated yesterday. Shanghai-based China Eastern Airlines, the nation’s second-biggest domestic carrier, dropped 7.1 percent to 3.03 yuan.

An opening ceremony for a Shanghai free-trade zone to test economic reforms is planned for this month, with Chinese Premier Li Keqiang set to officiate, two people with knowledge of the matter said. The event may be on a day from Sept. 27 to 29, depending on Li’s schedule, said the people, who asked not to be identified because they weren’t authorized to speak publicly about the matter.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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