China’s stocks fell for a second day, led by material producers, financial companies and airlines, after technical indicators signaled shares were overbought. Smaller-company shares rallied.
Jiangxi Copper Co. and Anhui Conch Cement Co. led declines for material companies with losses of at least 1.4 percent. Shanghai Pudong Development Bank Co. tumbled 3.5 percent, paring a rally to 36 percent since Aug. 22, when the Ministry of Commerce said the city’s free-trade zone proposal had been approved in July. China Eastern Airlines Corp. slid 5 percent after valuations jumped to a one-year high. Huayi Brothers Media Corp. paced a rally for smaller companies on the ChiNext index.
The Shanghai Composite Index fell 0.2 percent to 2,231.40 at the close after rising 4.5 percent last week. The 14-day relative strength index, measuring how rapidly prices have risen or dropped during a specified time period, was at 72.4 today. Readings above 70 show a price may be poised to fall.
“We need a technical correction after the rally,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “You see cash rotating to the smaller caps, which doesn’t need as much liquidity as large caps. Also, there’s speculation September and October data may not be as good as August. Cyclical stocks started dropping because of this.”
The CSI 300 Index slipped 0.4 percent to 2,478.39, paring a gain to 15 percent since reaching this year’s low on June 27. The Shanghai index has rallied 14 percent since the low as August data ranging from exports to industrial output showed growth is accelerating and as companies based in the city surged after the State Council approved a free-trade zone. The ChiNext gained 2 percent today.
The Shanghai measure is valued at 9 times its projected 12-month earnings, compared with the five-year average of 12.6 times, according to data compiled by Bloomberg. Trading volumes were 14 percent above the 30-day average today.
Jiangxi Copper, the biggest producer of the metal, lost 1.5 percent to 16.97 yuan. Anhui Conch, the largest cement company, dropped 1.4 percent to 15.98 yuan.
China Eastern led declines for industrial shares, slumping 5 percent to 3.26 yuan after jumping 21 percent last week. Air China Ltd., the nation’s largest international carrier, dropped 3.4 percent to 4.29 yuan.
Shanghai Pudong Bank lost 3.5 percent to 11.49 yuan. Bank of Communications Ltd. fell 2.4 percent to 4.57 yuan. The Shanghai free-trade zone is negative for Chinese banks because of faster compression of net interest margins if authorities allow yuan interest rates to be fully deregulated, Jefferies Group LLC said in a report dated Sept. 13.
The financial and industrial gauges in the CSI 300 have each rallied 12 percent since Aug. 22, the most among 10 industry groups, on speculation the free-trade zone will lure more business and boost earnings.
The trade zone is “very positive” and will help improve the country’s competitiveness, World Bank President Jim Yong Kim said at a briefing in Shanghai over the weekend. Premier Li Keqiang may travel to the city at the end of this month to officiate the opening ceremony for the city’s free-trade zone, two people with knowledge of the matter said.
The Hang Seng China Enterprises Index climbed 1.3 percent as former Treasury Secretary Lawrence Summers withdrew his name from consideration to be chairman of the Federal Reserve. The Bloomberg China-US Equity Index rose 0.4 percent on Sept. 13.
Film company Huayi Brothers surged 5.1 percent, adding to a 10 percent jump on Sept. 13. The company paid 210 million yuan for a 20 percent stake in Jiangsu Yao Lai Cinema Management, Variety reported.
The Shanghai index is poised to extend gains as investors anticipate the Chinese economy will keep strengthening, said Tom DeMark, the developer of market-timing indicators who predicted the gauge’s rally from a four-year low in June.
“The sharp acceleration over the past two weeks has introduced the possibility of a positive fundamental development which could extend the current rally into something more than one normally would expect,” the founder of Market Studies LLC, wrote in an e-mail from Scottsdale, Arizona on Sept. 12.