Most Chinese stocks fell, led by property companies, after valuations on the benchmark index rose to a five-month high and technical indicators signaled that equities were overbought.
China Vanke Co. and Poly Real Estate Group Co., the two biggest developers, sank more than 3 percent on speculation the government may intensify property curbs after a report showed a jump in home prices. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. jumped 5.1 percent as Hunan Corun New Energy Co.’s plan to buy a rival boosted prospects for industry consolidation. Shanxi Securities Co. rose 7.5 percent after CCB International said brokerages are the best way to invest in a market rebound.
Five stocks fell for every three that rose in the Shanghai Composite Index, which gained 0.1 percent to 2,162.46 at the close. The index has rebounded 10 percent since slumping to an almost four-year low on Dec. 3 amid speculation growth is stabilizing. The CSI 300 Index added 0.1 percent to 2,368.12.
“Stocks are falling after rising a lot in the past two days,” said Li Jun, a strategist at Central China Securities Co., referring to a 4.8 percent rally in the Shanghai index in previous two trading days. “We may still see some correction, profit taking along the way in the near term. However, the outlook for stocks is more optimistic as the economy has stabilized and company earnings won’t worsen.”
The Shanghai Composite’s trading volumes were 79 percent higher than the 30-day average for this time of day. The gauge pared gains in the afternoon as its 14-day relative strength index, which measures how rapidly prices have risen or dropped, rose to 70.7, data compiled by Bloomberg show. Some traders use a reading above 70 as a signal to sell. It closed at 68.7.
The Shanghai Composite has dropped 1.7 percent this year, heading for a third straight annual loss. The index trades at 11.9 times reported earnings, the highest level since July, data compiled by Bloomberg show. The ratio fell to 10.8 this month, the lowest level since at least 1997.
A gauge of property stocks in the Shanghai index slid 1.8 percent, the most among five industry groups. China Vanke declined 3.7 percent to 9.22 yuan, while Poly Real Estate lost 3.6 percent to 12.14 yuan.
China’s new home prices climbed in 53 of the 70 cities last month, compared with 35 in October, according to data from the National Bureau of Statistics today. That was the most in 18 months. Among major cities, home prices in Beijing and Guangzhou rose 0.6 percent each, while Shanghai climbed 0.2 percent from October.
In its more than two-year effort to rein in prices, the central government raised down-payment and mortgage requirements, imposed a property tax for the first time in Shanghai and Chongqing, increased building of low-cost social housing, and placed home-purchase restrictions in about 40 cities.
“There is still rising pressure on home prices, so it’s very difficult for the government to relax the measures,” Ding Shuang, a Hong Kong-based economist with Citigroup Inc., said in a phone interview today. “The government will strengthen the enforcement of the current curbs if not necessarily issue new measures.”
A gauge of material stocks in the CSI 300 added 0.8 percent, the most among 10 industry groups. Inner Mongolia Baotou surged 5.1 percent to 36.17 yuan, whle Rising Nonferrous Metals Share Co. soared 10 percent for the second time in three days, to 47.55 yuan.
Hunan Corun New Energy Co. jumped 10 percent to 20.50 yuan after it said it plans to acquire Yiyang Hongyuan Rare Earth Co., a company valued at 1.22 billion yuan ($200 million).
“The planned purchase revives expectations of consolidation through the industry chain,” said Zhang Fang, a Beijing-based analyst with China Securities Co. “The market is bullish on rare earth stocks.”
Shanxi Securities rose 7.5 percent to 6.89 yuan for a three-day gain of 20 percent. Citic Securities Co. added 0.3 percent to 11.83 yuan after CCB made the Hong Kong-traded shares of Citic one of its top picks among Chinese brokerages, according to a report yesterday from Silvia Fun, a Hong Kong-based analyst.
China’s stocks have rallied on A-share equity investment demand from overseas investors, Fun said. China may relax or abolish a rule that requires Renminbi Qualified Foreign Institutional Investors to keep most of their funds in bonds, the Hong Kong Monetary Authority said Dec. 13.
The government a day later announced it would ease restrictions on investments by overseas sovereign wealth funds and central banks in its capital markets.
The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong slipped 0.1 percent today. The Bloomberg China-US Equity Index fell less than 0.1 percent yesterday, while the iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., added 0.3 percent, extending its advance this year to 13 percent.
-- Editors: Allen Wan, Ravil Shirodkar