Chinese Stocks Decline as Small-Caps Drop on Economy; Banks Gain

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China’s stocks fell the most in six weeks after economic data for March trailed estimates and investors switched out of smaller companies into less expensive banks.

Gauges of technology companies and commodity producers slumped at least 2.9 percent. Software developer Hundsun Technologies Inc. lost 9.1 percent, while BBMG Corp., a cement maker, tumbled 6.2 percent. Huaxia Bank Co. jumped 10 percent. Industrial production grew 5.6 percent in March, missing the lowest forecast in Bloomberg’s survey of 40 economists, data showed Wednesday. The economy expanded 7 percent in the first quarter from a year earlier, the slowest pace in six years.

The Shanghai Composite Index fell 1.2 percent to 4,084.16 at the close, its biggest drop in six weeks. The index jumped 73 percent in the past six months, the most among 92 benchmark indexes globally. Premier Li Keqiang’s government has already relaxed home-purchasing rules, cut interest rates twice and reduced the reserves banks must set aside to bolster the world’s second-largest economy.

“The poor economic figures released recently are starting to be of concern to local investors,” said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. “It is normal to have this type of correction because the discrepancies between stock-market sentiment and the overall economy were becoming just too large.”

The Hang Seng China Enterprises Index gained 1.5 percent, while the Hang Seng Index added 0.2 percent. The CSI 300 Index dropped 1.3 percent. A 4.5 percent slump for technology shares in the gauge pared this year’s gain to 65 percent. CSI 300 technology stocks are almost five times more expensive than financial shares, according to data compiled by Bloomberg. The ChiNext index of smaller companies, which trades at 81 times reported earnings, sank 4.6 percent.

ChiNext Outlook

Investors should shift away from the ChiNext as initial public offering subscriptions and the start of new stock-index futures contracts will likely have an impact on liquidity conditions, according to China International Capital Corp.

The CSI 500 Index of smaller companies slumped 3.9 percent before the start of futures trading on Thursday.

Investors may take advantage of the start of CSI 500 index futures trading to short smaller companies and buy large-cap stocks, said Hao Hong, the chief China strategist at Bocom International Holdings Co. in Hong Kong.

Material producers declined, led by construction-related companies, after cement output plunged by a record 20.5 percent in March. BBMG posted its biggest drop in almost four months. Tangshan Jidong Cement Co. retreated 9 percent.

Banks Rally

Retail sales climbed 10.2 percent, compared with the 10.9 percent median projection. Fixed-asset investment excluding rural areas expanded 13.5 percent in the first quarter, compared with the 13.9 percent seen by economists. New property construction sank 18.4 percent in the first quarter.

Gains by lenders and energy producers helped shore up Chinese stocks in Hong Kong, with Industrial & Commercial Bank of China Ltd. rising 4.9 percent and China Petroleum & Chemical Corp. gaining 2.1 percent. Huaxia Bank surged by the 10 percent daily limit in Shanghai.

CICC recommended “cheap blue chips,” especially financial stocks benefiting from the adjustment of stock-index futures position limits and the equity incentive plan of China Merchants Bank Co. The lender, which rose at least 1.5 percent today in Hong Kong and Shanghai, said on April 13 it will raise as much as 6 billion yuan ($967 million) in a private placement to no more than 8,500 employees.

The IShares FTSE A50 China Index ETF, one of the world’s biggest exchange-traded funds tracking mainland-listed shares, jumped as much as 7.4 percent on Wednesday, the biggest gain this year.

Morgan Stanley strategist Jonathan Garner said more global clients are researching shares on the mainland and Hong Kong now than at the start of the year.

“People are still underweight Hong Kong and China,” said Garner, who invoked the space-travel movie “Interstellar” in a report describing how time appears to move faster in China’s stock market. “In the last two weeks, we have seen a much greater degree of interest.”

— With assistance by Shidong Zhang, and Kana Nishizawa

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