Chinese stocks fell for a second day, led by financial and energy companies, amid speculation a world-beating rally was excessive relative to earnings prospects.
New China Life Insurance Co. dragged down financial shares with losses of at least 1.8 percent. Wintime Energy Co., a coal miner, dropped 2.2 percent after rising 94 percent since July 22. Aluminum Corp. of China Ltd., the nation’s leading producer of the light metal, surged by its daily limit in mainland trading after China approved its plan to set up a rare earth company. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. rose 2.7 percent to lead an advance for material companies.
The Hang Seng China Enterprises Index (HSCEI), also known as the H-share index, fell 0.3 percent to 10,979.93 at the close in Hong Kong. The measure entered a bull market last week. The Shanghai Composite Index (SHCOMP) slid 0.1 percent to 2,217.465, paring a rebound from this year’s low to 11 percent. The index will probably end its rally within days and fall about 10 percent, according to Tom DeMark, the developer of market-timing indicators.
“The market is at levels where people tend to take profits and investors are likely to use some kind of excuse to sell,” said Mari Oshidari, a Hong Kong-based strategist at Okasan Securities Group Inc. “Global risks are also contributing to the weakness, with people becoming more risk-off. A weaker mainland market is dragging H-shares as well.”
The CSI 300 Index lost 0.3 percent. Hong Kong’s Hang Seng Index (HSI) slipped 0.3 percent. The H-shares gauge trades at 7.3 times estimated profit for the next 12 months, compared with 10.9 for the Hang Seng Index. Trading volumes in the Shanghai index were 38 percent above the 30-day average, according to data compiled by Bloomberg.
The Shanghai index’s relative-strength index has reached 76.7 and trades at 8.2 times estimated 12-month earnings, compared with the March low of 7.27. The measure of China’s $3.5 trillion stock market has outperformed equity indexes in 46 emerging and developed countries in the past six weeks as signs of monetary easing, accelerated government spending and gains in manufacturing spurred speculation the nation’s economic growth will pick up.
“We rose too much recently so there’s some profit taking,” said Zhang Haidong, an analyst at Tebon Securities Co. in Shanghai. “It should continue for a week or two and could stop around 2,150. The uptrend should still continue after that, though gains will be more gradual.”
The number of funded stock accounts on the mainland fell by about 352,000 last week, the most since the week to Oct. 15, 2010, according to data compiled by Bloomberg. That left funded stock accounts at 52.6 million, the lowest since March 2010.
A gauge of financial shares in the CSI 300 including developers dropped 0.9 percent, the most among 10 industry groups. Ping An Bank Co. dropped 1.6 percent and Poly Real Estate Group Co. declined 1 percent. Ping An Insurance (Group) Co. slumped 0.7 percent in Hong Kong. New China Life slid 1.9 percent in Shanghai and droppped 1.8 percent in Hong Kong.
Yanzhou Coal Mining Co. fell 0.8 percent in Hong Kong, paring this year’s rebound from the March low to 32 percent. Wintime Energy dropped the most in about a month. Analysts’ consensus earnings estimates for Chinese coal companies in the first half may be too high, China International Caoutal Corp. analysts Hongyu Cai and Yubo Dong wrote in an Aug. 4 note.
Aluminum Corp., also known as Chalco, surged 10 percent in Shanghai and jumped 9.4 percent in Hong Kong. The Ministry of Industry and Information Technology approved its rare earth company plan, according to a statement on the State-owned Assets Supervision and Administration Commission’s official microblog. The new company will consolidate rare earth mining and processing in some provinces, it said. Inner Mongolia Baotou climbed 2.7 percent. Xiamen Tungsten Co. (600549) rose 1.5 percent.
Cheah Cheng Hye, the chairman of Value Partners Group (806), which runs the best-performing Greater China equity fund during the past five years, is predicting a further gain of about 15 percent for the Shanghai index by year-end. While President Xi Jinping’s anti-corruption measures may be a short-term drag on growth, they will make state-owned enterprises more efficient and help curb excessive debt, he said.
“I am quite optimistic,” Cheah said. “The market has bottomed out. We’re beginning to see the beginning of a recovery in the months of June and July. The strong performance may only be the beginning.”
China Unicom (Hong Kong) Ltd. (762) sank 5.3 percent to lead declines on the Hang Seng Index. The company’s second-quarter earnings, to be announced tomorrow, may miss consensus on slower subscriber growth, CICC said in a report. Yue Yuen Industrial Holdings Ltd. (551) lost 1.5 percent after the shoemaker said it expects employee benefit payments to curb profits.
Brokerages surged in Hong Kong. China Everbright Ltd. gained 7.2 percent, while Sunwah Kingsway Capital Holdings Ltd. (188) jumped 17 percent.
Futures on the S&P 500 climbed 0.2 percent. The U.S. benchmark index slid 1 percent yesterday as concern increased over escalating tensions in Ukraine. The Bloomberg China-US Equity Index of the country’s most-traded shares in the U.S. dropped 1.5 percent.