Hao Hong, the Bocom International Holdings Co. strategist who predicted the second-half rally in Chinese stocks, now advises paring holdings on concern economic data will trail estimates as the central bank tightens policy.
“It is time to lock in the gains we have earned since late June,” Hong wrote in an e-mailed note. “Growth expectations have been revised up since the market capitulation in late June, and are now running ahead of themselves.”
Hong advised buying Chinese shares on June 26, saying trading patterns signaled a rebound. The Shanghai Composite Index (SHCOMP) rallied as much as 16 percent from a four-year low on June 27, while the Hang Seng China Enterprises Index (HSCEI) gained as much as 21 percent. China’s economic growth accelerated last quarter as Premier Li Keqiang spurred factory output and investment to meet the government’s expansion goal for 2013.
The People’s Bank of China will probably start “fine-tuning” its monetary policy to curb surging property prices, Hong wrote. China’s benchmark money-market rate jumped the most since July today after the PBOC refrained from conducting reverse repos for a third straight auction. The central bank drained a net 58 billion yuan ($9.5 billion) from the financial system this week as reverse repos matured, said Chen Long, an analyst at Bank of Dongguan.
Home prices in China’s four major cities rose last month by the most since January 2011, heightening concerns a bubble is forming. New home prices gained 20 percent in the southern business hubs of Shenzhen and Guangzhou, 17 percent in Shanghai and 16 percent in Beijing from a year earlier.
The Shanghai Composite fell 0.5 percent to 2,171.92 at 1:57 p.m., heading for a one-month low. The Hang Seng China gauge slid 1 percent to 10,356.67 in a third day of losses.
Stocks are unlikely to gain on any reforms announced at the third plenum of the Communist Party’s central committee next month, Hong wrote. “We all root for a reform, but a reform, albeit beneficial to the economy, can be a temporary drag on the market.”
Hong also advised avoiding small-cap stocks. The ChiNext index of smaller companies listed in Shenzhen has tumbled 6.7 percent in the past three days, paring its rally this year to 83 percent.
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at email@example.com