China’s Shares Drop First Time in Three Days on Economic Concern

  • Shanghai Composite had posted first weekly gain in two months
  • Brokers falter after surging over past week on link optimism

Chinese stocks fell for the first time in three days, led by brokerages and consumer-staples companies, before the release of data this week that will likely show the world’s second-biggest economy failing to sustain growth momentum.

The Shanghai Composite Index slid 0.2 percent at the close. Citic Securities Co. paced declines for brokerages after the stock surged more than 7 percent in a week. A gauge tracking mainland companies in Hong Kong rose for a seventh day for the longest winning streak since April 2015. The city’s property companies including Wharf Holdings Ltd. jumped as traders cut bets for higher U.S. borrowing costs after weaker-than-expected payrolls data. The city’s currency is pegged to the dollar.

Speculation that Chinese authorities will soon announce the start date for an exchange link with Shenzhen spurred gains by securities firms and banks last week. Investors are switching attention to the health of the economy, with foreign reserves, trade and inflation data to be announced from Tuesday through Thursday. Mainland markets will be closed after Wednesday for public holidays.

“The brokers are retreating after a strong rally last week as the market chatter of the stock connect happening this week turned out to be only a rumor so far,” said Yen Chiu, a sales trader at China Securities International Financial Holding Co. in Hong Kong. “Investors are being cautious ahead of a holiday in China.”

Losing Momentum

The Shanghai Composite fell to 2,934.10. The gauge jumped 4.2 percent last week for the first weekly advance in two months. The Hang Seng China index rose 0.6 percent, while the Hang Seng Index added 0.4 percent.

A report due Tuesday will probably show China’s foreign-exchange reserves fell to $3.2 trillion in May from $3.22 trillion in the prior month, according to the median estimate in a Bloomberg survey of analysts. Overseas shipments likely dropped 4 percent, compared with a 1.8 percent decline in April, another survey showed. Data last week showed an official factory index stood at 50.1, around the line between expansion and contraction, while a non-manufacturing gauge fell from the previous month.

Even after a 42 percent tumble in the Shanghai Composite over the past 12 months, valuations for A shares are three times as expensive as every other major market worldwide. The median price-to-earnings ratio on the nation’s exchanges is 59, higher than that of U.S. technology shares at the height of the dot-com boom in 2000.

Gauges of financial and consumer-staples shares in the CSI 300 fell at least 0.6 percent for the worst performance among 10 industry groups. Citic Securities, the nation’s biggest brokerage, dropped 1 percent, while Northeast Securities Co., which jumped 9.8 percent last week, declined 1.6 percent. Kweichow Moutai Co. slumped 2.8 percent, paring this year’s gain to 27 percent.

China Nuclear Engineering Group Co. rose by the daily trading limit of 44 percent in its Shanghai debut as a shift by the world’s largest energy consumer towards cleaner power generation is expected to expand its business.

Gold producers rallied, helping the index to limit losses. Shandong Gold Mining Co. and Zhongjin Gold Corp. surged at least 4.5 percent, as the weak U.S. jobs report signaled that the Fed may delay a rate increase on concerns the economy is faltering.

In Hong Kong, the three best performers in the Hang Seng Index were real estate companies, with Wharf Holdings jumping 5.2 percent and both Cheung Kong Property Holdings Ltd. and Hang Lung Properties Ltd. gaining 1.9 percent.

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