The Hang Seng China Enterprises Index slid 2.1 percent at the close, as Industrial & Commercial Bank of China Ltd. led declines for financial companies. The Shanghai Composite Index retreated 0.5 percent after rallying the most in two months yesterday. The yield on 10-year government bonds climbed, while yuan forwards fell the most in six weeks.
A private report showed manufacturing may contract for the first time in six months, adding to risks for an economy that’s facing potential defaults on high-yield investment products and elevated borrowing costs. Chinese stocks rose the past two days after the central bank added more than $42 billion to the financial system to meet cash demand before a holiday.
“The economic data today hurt investor sentiment and had an impact on all asset classes including stocks and bonds,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Liquidity concerns added to the economic worries.”
The MSCI Emerging Markets Index retreated 0.8 percent, heading for the biggest decline in two weeks. South Korea’s won weakened 0.6 percent against the dollar and the Russian ruble fell 0.5 percent. Australia’s currency depreciated 0.8 percent.
A gauge of China’s manufacturing dropped to 49.6 in January from 50.5 the previous month, HSBC Holdings Plc and Markit Economics said today. Economists had projected a reading of 50.3, according to the median estimate in a Bloomberg survey. A figure under 50 indicates contraction.
Energy and material stocks led declines in Shanghai. Jiangxi Copper Co., the biggest Chinese producer of the metal, slid 1.2 percent, while PetroChina Co., the largest energy company, lost 0.9 percent.
The seven-day repurchase rate, a gauge of interbank funding availability, climbed five basis points to 5.3 percent in Shanghai, according to a daily fixing compiled by the National Interbank Funding Center. It had fallen 107 basis points in the previous two days, after jumping to an almost one-month high on Jan. 20.
The CSI 300 Index lost 0.5 percent, while the Shenzhen-listed ChiNext index of small-company stocks gained 2.1 percent to a record high. Eight companies that started trading today in Shenzhen rallied by the 45 percent limit, with five of those listed in the ChiNext.
ICBC, the nation’s No. 1 lender, fell 3.4 percent in Hong Kong, while China Construction Bank Corp., the second-biggest lender, slid 1.6 percent. Both stocks dropped at least 0.9 percent in Shanghai.
ICBC and China Credit Trust Co. may together with the government bail out investors in a troubled trust that sparked concern of defaults on high-yield investment products, according to the Time-Weekly newspaper. About 20 investors of a 3 billion-yuan trust product that matures at the end of the month gathered in front of the Shanghai branch of ICBC’s private banking unit today to demand payment.
Twelve-month non-deliverable yuan forwards fell 0.15 percent, the most since Dec. 11, to 6.1170 per dollar in Hong Kong, according to data compiled by Bloomberg. The yuan in Shanghai slipped 0.02 percent to 6.0527 per dollar while the Bloomberg Dollar Spot Index rose for the eighth straight day on speculation an improvement in the U.S. economy will spur the Federal Reserve to cut stimulus next week.
The manufacturing data “is driving yuan forwards lower,” said Nick Verdi, a currency strategist at Barclays Plc in Singapore. “Broader dollar strength is causing the yuan to depreciate, but it’s still outperforming its Asian peers.”
The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, rose six basis points, or 0.06 percentage point, to 4.90 percent in Shanghai, according to data compiled by Bloomberg.
The yield on the government’s 4.08 percent bonds due August 2023 climbed five basis points after sliding to 4.5 percent yesterday, the lowest since Dec. 4, according to the Interbank Funding Center.
China’s financial markets will be closed from Jan. 31 to Feb. 6.
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