China Stocks Retreat as Yuan Drop, Slowing Economy Spur Selling

Yuan Declines for Fifth Week
  • Currency depreciation worries driving shares lower: Mirabaud
  • Shanghai Composite pares weekly advance as banks decline

Chinese stocks traded at home and overseas declined, with the nation’s assets coming under selling pressure amid speculation policy makers will allow further yuan declines to spur growth in the world’s second-largest economy.

The Shanghai Composite Index fell 1 percent, the most in two weeks, with financial companies among the biggest decliners and as energy shares tracked oil prices lower. The Hang Seng Index was dragged down by HSBC Holdings Plc, which retreated after S&P Global Ratings downgraded the lender’s outlook to negative on possible effects from Britain’s vote to leave the European Union.

Friday’s decline, which pared a second weekly advance for the Shanghai benchmark, came a day after official data showed a surprise increase in China’s foreign-exchange reserves. This is a signal that the monetary authority may have reduced support for the yuan, and the currency may decline further, according to DBS Group Holdings Ltd. The recent gains that took the Shanghai gauge to a close above 3,000 for the first time since April this week were underpinned by expectations that policy makers will take steps to support the economy after the June 23 Brexit referendum. The yuan fell for a fifth week.

“Concerns over the yuan’s depreciation and China’s slowing economy are weighing on markets,” said Andrew Clarke, Hong Kong-based director of trading at Mirabaud Asia Ltd. “Whilst people have been blaming Brexit for recent market volatility, they have neglected such bigger issues.”

Paring Gains

The Shanghai equity gauge fell to 2,988.09, paring its weekly gain to 1.9 percent. The measure added 4.3 percent since the Brexit vote through Thursday, the most among global benchmarks tracked by Bloomberg after Ukrainian and Vietnamese equities.

Industrial and Commercial Bank of China Ltd. was the biggest drag on the Shanghai gauge as it traded without the rights to a dividend. Agricultural Bank of China Ltd. dropped 1 percent, while Bank of China Ltd. slipped 0.9 percent.

The Hang Seng Index retreated 0.7 percent to 20,564.17 in Hong Kong as HSBC, which has the second-highest weighting on the gauge, slipped 0.3 percent. A measure of Chinese companies traded in the city dropped 0.8 percent, taking its weekly loss to 2 percent. China Cinda Asset Management Co. and Huaneng Power International Inc. fell at least 0.8 percent.

Credit Suisse Group AG Friday cut its targets for the Hang Seng Index and the Hang Seng China Enterprises Index, saying that second-quarter economic growth of below 6.5 percent would be a negative. China will probably report April-June expansion of 6.6 percent, according to the median estimate in a Bloomberg survey before data due July 15.

New Listings

In Shanghai, minicar maker Chongqing Sokon Industry Group Co. and Shanghai Hugong Electric Group Co., surged more than 61 percent this week as they extended their gains after listing last month.

The MSCI Asia Pacific Index retreated 0.6 percent as investors awaited U.S. payrolls report due Friday amid speculation the June data will be key to determining whether the Federal Reserve is likely to raise interest rates this year.

Sinopec fell 1 percent in Shanghai and PetroChina lost 0.6 percent as U.S. oil prices headed for a 7 percent drop this week. Shandong Gold Mining Co. dropped the most in more than a week. Angang Steel Co. rose 2.2 percent in Hong Kong after saying it expects first-half profits to nearly double on falling costs.

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