China’s Stocks Carve Out Biggest Monthly Advance Since March

  • Authorities don’t want market to fall too much: Geo Securities
  • Small-cap shares slide in Hong Kong after Tech Pro’s plunge

Chinese stocks posted their biggest monthly advance since March as concern about a weaker yuan faded and data added to evidence of a stabilizing economy.

The Shanghai Composite Index has climbed 1.7 percent in July in a second month of gains, with consumer companies leading. The gauge fell 0.5 percent at Friday’s close, paced by materials producers, while a loss projection by Cnooc Ltd. weighed on energy companies listed in Hong Kong.

Growth in the nation’s economy was better than expected in the second quarter, while lending and consumer spending perked up in June in response to stepped up monetary and fiscal policy support. Stocks were also buoyed this month by speculated buying by state-backed funds, according to Geo Securities Ltd. Small-cap shares have slumped this week amid concern they may be more affected than larger peers as China’s regulators consider curtailing financial-system risks.

“The national team has probably been supporting the market, so it rose above the 3,000 level this month,” said Francis Lun, chief executive officer at Geo Securities in Hong Kong. “The government doesn’t want the market to fall too much.”

The Shanghai equity gauge, which tumbled the most in six weeks on Wednesday, closed at 2,979.34. The Hang Seng China Enterprises Index of mainland companies and the Hang Seng Index lost at least 1.3 percent. The MSCI Asia Pacific Index added 0.4 percent, taking its rally this month to 5 percent.

The ChiNext index fell 0.8 percent, extending its plunge this week to 5.7 percent.

The China Banking Regulatory Commission is drafting rules governing WMPs to prevent risks in the sector, the Xinhua News Agency reported, citing the regulator. The CBRC is said to be planning a crackdown on the $3.5 trillion wealth management product market, with initial draft rules forbidding cash from “mass market” products to be invested in locally listed shares, a person with direct knowledge of the matter said this week.

Small-Caps

“ChiNext shares are more volatile and take more of a hit than A shares in case sentiment changes,” said Yen Chiu, a Hong Kong-based trader at China Securities International Finance Holding Co. “They are more risky and more leveraged as well.”

Shanghai New Culture Media Group Co. tumbled 5.9 percent, the biggest decliner on the ChiNext index for a second day, after the securities markets regulator rejected an asset purchase plan by the producer of films and TV shows.

Tech Pro Technology Development Ltd. plummeted 56 percent in Hong Kong after an 86 percent plunge on Thursday, when activist short-seller Glaucus Research Group questioned the capacitor-maker’s accounting. The MSCI Hong Kong Small Cap Index lost 1.4 percent.

“Investors are nervous after small caps slumped following Tech Pro’s plunge,” said Linus Yip, a strategist at First Shanghai Securities in Hong Kong.

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