China's Stocks Drop Most in Two Weeks as Moutai, ZTE Retreat

PBOC Action and China's Forex Reserve Surprise
  • ZTE tumbles in Hong Kong as trading resumes after a month
  • Sentiment is weak amid lack of new triggers, analyst says

China’s stocks fell the most in two weeks as investors weighed foreign-exchange reserves data to gauge capital flows.

The Shanghai Composite Index slid 1.4 percent at the close. Central bank data released after the end of trading showed an unexpected increase in the forex reserves as the nation’s currency steadied. Kweichow Moutai Co., the biggest Chinese liquor maker, retreated the most in three weeks. ZTE Corp. slumped in Hong Kong as trading resumed following a one-month halt after the U.S. government alleged it violated trade sanctions with Iran. The yuan strengthened in Shanghai.

“Market sentiment is still very weak,” said Dickie Wong, an executive director at Kingston Securities Ltd. “Some economic data including China’s official PMI slightly improved, but not significantly.”

China’s economic rebound faces risks including inflation expectations triggered by rising pork prices and home-purchase curbs in top cities, according to a front-page commentary in the China Securities Journal. The nation’s manufacturing expanded for the first time in eight months in March, according to official data released last week.

The Shanghai equity gauge fell to 3,008.42, declining for a second day from a three-month high. Although recent economic indicators have brought stability to mainland financial markets, the index is among the worst performers globally in the year to date. Technology and consumer-staples companies dropped the most among 10 industry groups on the CSI 300 Index, falling at least 1.9 percent. Kweichow Moutai slid 1.2 percent after jumping to a 10-month high on Wednesday, while Hundsun Technologies Inc. decreased 3.7 percent.

The Hang Seng China Enterprises Index dropped 0.3 percent in Hong Kong, capping a fourth day of declines after the gauge entered a bull market last week.

ZTE plunged 10 percent, its biggest loss since August, after saying the impact of the U.S. action was “highly uncertain” and that it could face civil and criminal penalties. ZTE shares traded in Shenzhen added 1.1 percent.

Chinese investors have been net buyers of Hong Kong shares for 104 consecutive trading days, sinking 43.8 billion yuan ($6.8 billion) into equities from October through Tuesday, according to data compiled by Bloomberg tracking investments via the exchange link with Shanghai. Mainland traders have now put more money into Hong Kong than global asset managers have invested in Shanghai.

“Hong Kong’s shares are cheaper in valuations than mainland stocks,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co. “That’s also one reason that the market is attracting buying interest.”

Capital Flows

The yuan strengthened 0.2 percent against the dollar. The world’s largest currency hoard rose by $10.3 billion to $3.21 trillion last month, the People’s Bank of China said in a statement Thursday. That compared with the $6.3 billion decrease expected by economists surveyed by Bloomberg.

Authorities have stemmed a record tide of departing money with stricter currency rules and repeated statements they don’t want a big devaluation in the yuan. They’ve been helped by a weaker greenback after the U.S. Federal Reserve scaled back projections for the number of interest-rate increases it’s expecting this year.

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