China’s stocks dropped for the first time in three days, led by commodity producers, after the biggest tumble in producer prices in six years reignited concern about a deeper economic slowdown.
The Shanghai Composite Index slid 1.4 percent to 3,197.89 at the close, snapping a 5.3 percent, two-day advance. About five stocks declined for each that rose, as gauges of material and technology companies lost more than 2.5 percent. The producer-price index fell 5.9 percent in August, extending slides to 42 straight months, while consumer prices increased 2 percent, the fastest pace in a year.
Factory deflation is pushing up real borrowing costs for the industrial sector, compounding challenges for policy makers as the growth outlook dims. The Shanghai Composite has tumbled 38 percent from its June high to erase $5 trillion in value on mainland bourses as leveraged investors fled amid concerns valuations weren’t justified given the weakening economy.
“There is some clear profit taking” after recent gains, said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. “The PPI figure is concerning and it points to the further need for stimulus.”
The Hang Seng Index slumped 2.5 percent in Hong Kong, with the Hang Seng China Enterprises Index retreating 2 percent. The CSI 300 Index fell 1.2 percent. Trading in Shanghai was 33 percent below the 30-day average.
Yunnan Copper Co. sank by the 10 percent daily limit for a third straight day, while Jiangxi Copper Co. retreated 3.6 percent. Universal Scientific Industrial (Shanghai) Co. tumbled 8.4 percent to lead losses by technology companies.
Brokerages were among the biggest decliners in Hong Kong. Citic Securities Co. slumped 3.1 percent, while China Galaxy Securities Co. declined 2.3 percent.
China’s campaign to end the equity rout is driving investors away from the brokerage industry. Instead of benefiting from government efforts to shore up the market, the Hong Kong-listed shares of Citic Securities, Haitong Securities Co. and China Galaxy Securities have tumbled twice as fast as benchmark indexes since the beginning of July. Not only are brokerages being compelled to foot a portion of the rescue bill, they’re also getting hit by a plunge in volumes as policy makers restrict speculative trading.
China will probably delay the start of a Shenzhen stock-exchange link until next year as authorities focus their efforts on stabilizing the mainland share prices in the wake of the selloff, according to 10 of the 13 respondents in a Bloomberg survey. The rest predicted a move by year-end.
Traders increased holdings of shares purchased with borrowed money on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising 1.5 percent to 622.3 billion yuan ($96 billion).