Most China Stocks Drop in Volatile Trade; Index Near 7-Year High

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Most China stocks fell amid rising volatility as the benchmark gauge traded near the highest level in seven years.

Huadian Power International Corp. and dairy producer Inner Mongolia Yili Industrial Group Co. lost more than 2 percent. Tonghua Dongbao Pharmaceutical Co. led declines among drug makers. Bank of Ningbo Co. jumped 5.1 percent after getting regulatory approval to sell preferred shares.

The Shanghai Composite Index closed little changed at 4,909.98 after changing direction 15 times, with five stocks falling for every four that rose. The measure jumped 6.5 percent this week through Tuesday, extending this year’s advance to 52 percent, while its 100-day volatility index has increased to the highest level in more than five years. The Shenzhen Composite Index rose 0.4 percent, taking its advance over the past four days to 10 percent.

“We may see more days of volatile trading like this,” Dai Ming, a fund manager at Hengsheng Asset Management Co., said in Shanghai. “It’s a pattern, like quick corrections and quick recoveries. The bullish trend is still there, as inflows from banking deposits and the property market are continuing.”

The CSI 300 Index lost 0.4 percent, with eight out of 10 industry groups on the gauge declining. Gauges of utilities and consumer-staples stocks fell 2 percent and 1.5 percent respectively, the worst performers on the index. The Hang Seng China Enterprises Index fell for a second day, dropping 0.5 percent, while the Hang Seng Index added 0.7 percent.

Margin Debt

Trading volume in the Shanghai Composite was 8.1 percent higher than the 30-day average. The index has advanced 52 percent this year, the most among global benchmark indexes, as the government cut interest rates and margin debt climbed to a record.

Margin traders increased holdings of shares purchased with borrowed money on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising by 1.5 percent to a record 1.39 trillion yuan ($224.3 billion).

Chinese investors opened a record 4.44 million new stock accounts in the week ended May 29, according to data from the China Securities Depository & Clearing website. That surpassed the previous record of 4.14 million in the week ended April 24.

Huadian Power retreated 2.6 percent after jumping 70 percent since February, while Shanghai Electric Power Co. tumbled 3.8 percent after almost doubling over the past two months.

Bank Profits

Bank of Ningbo closed at the highest since January 2008 after the China Banking Regulatory Commission approved the company’s plan to raise as much as 5 billion yuan through the sales of 50 million preferred shares.

Lenders will be allowed to issue the certificates of deposit to individuals and companies, according to rules published by the People’s Bank of China on Tuesday. The minimum size for individuals will be 300,000 yuan ($48,400) and 10 million yuan for corporates, it said.

The move will erode banks’ profits by 1.2 percentage points by raising their debt costs, analysts led by Li Yamin at Ping An Securities Co. wrote in a report dated Wednesday.

The Shanghai Composite is valued at 18.4 times projected 12-month earnings, compared with the five-year average multiple of 10.2, according to data compiled by Bloomberg.

— With assistance by Shidong Zhang

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