China’s stocks fell, dragging down the benchmark index from a nine-month high, after the nation’s biggest-listed developer reported a drop in sales and a private gauge of the services trade declined to a record low.
China Vanke Co. slid 2.1 percent in Shenzhen after sales dropped to 13.3 billion yuan ($2.15 billion) from 19.4 billion in June. Poly Real Estate Group Co. retreated 1.7 percent to send a gauge of developers to the biggest loss among industry groups. Chongqing Chuanyi Automation Co. jumped 44 percent in its first day of trading in Shanghai.
The Shanghai Composite Index (SHCOMP) fell 0.2 percent to 2,219.95 at the close, after jumping 1.7 percent yesterday. The Shanghai index has rebounded 11 percent from this year’s low amid signs of monetary easing, along with accelerated government spending and gains in manufacturing industries. The measure will probably end its world-beating rally within days and fall about 10 percent, said Tom DeMark, the developer of market-timing indicators who predicted the gauge’s peak last year.
“We gained a lot in the last session and there is a need to correct, the resistance is strong and the volume can’t catch up,” said Zhang Yanbing, an analyst at Zheshang Securities Co. in Shanghai. “Some people may also believe DeMark’s call to sell Shanghai stocks because he has been accurate a couple of times.”
The CSI 300 Index slipped 0.3 percent, paring a rebound from this year’s low in March to 14 percent. The ChiNext jumped 2.3 percent, trimming losses since the February peak to 10 percent. The Hang Seng China Enterprises Index lost 0.9 percent at 3:08 p.m. The Bloomberg China-US Equity Index of the country’s most-traded shares in the U.S advanced 1.5 percent. Trading volumes in the Shanghai index were 40 percent above the 30-day average, according to data compiled by Bloomberg.
The July reading for an index of China’s services industry by HSBC Holdings Plc and Markit Economics came in at 50, the lowest since the series began in November 2005 and down from 53.1 in June. A report over the weekend showed the government’s non-manufacturing Purchasing Managers’ Index fell to 54.2 in July from 55 in June. A reading above 50 indicates expansion.
The services drop likely reflects the property slowdown in many cities, HSBC economist Hongbin Qu wrote in a statement accompanying the data. The services sector will get some support in coming months from the recovery in investment, though today’s data point to the need for continued policy support to offset a property correction, he said.
A measure of developers in the Shanghai index dropped 0.8 percent. Gemdale Corp. slumped 2.3 percent. Greentown China Holdings Ltd. (3900) plunged 13 percent in Hong Kong after saying first-half net income may drop more than 65 percent.
“Selling into strength now is recommended,” wrote DeMark, the founder of DeMark Analytics LLC in Scottsdale, Arizona, who has spent more than 40 years developing indicators to identify market turning points. “The trend is your friend until the trend is about to end.”
Huayi Brothers Media Corp. (300027), which has the second-largest weighting in the ChiNext, surged 5.8 percent. ChiNext’s relative weakness has reached extremes in near term, Hao Hong, the Hong Kong-based strategist at Bocom International Holdings Co., wrote in a note.
The large-cap stock rally has been due to rotation rather than new money coming into market, Hong said. When this “euphoric sentiment” reverses, large stocks will enter a consolidation phase if not a correction, he said.
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