China’s H Shares Post Steepest Two-Day Decline in Seven Months

Chinese August Data Beats Estimates
  • Equities reverse early advance on receding stimulus bets
  • Stocks hit also as Shanghai link halted pre-holiday: analyst

Chinese stocks traded in Hong Kong posted their biggest two-day loss since February on reduced chances of economic stimulus and as the suspension of buying through a cross-border equity link took a key investor bloc out of the market.

The Hang Seng China Enterprises Index retreated 0.9 percent, taking a two-day decline to 4.8 percent. The gauge, which surged earlier in the day on optimism that the Federal Reserve will desist from increasing interest rates this month, slipped into the red after official data showed China’s industrial production, investment and retail sales all exceeded economist estimates. Tuesday’s reversal came also as the buying of Hong Kong shares through the Shanghai connect was halted ahead of a two-day holiday on the mainland.

The latest Chinese data show that the economy has stabilized, and the People’s Bank of China will probably refrain from cutting interest rates or lowering lenders’ reserve ratios, according to Macquarie Securities Ltd. Mainland investors bought an average of almost 5 billion yuan ($748 million) of Hong Kong shares every day last week, more than four times the daily average of this year, Bloomberg calculations show.

“Hong Kong stocks ran out of steam in the absence of southbound buying, which has been driving recent rallies,” said Ronald Wan, chief executive of Partners Capital International Ltd. in Hong Kong. “Shares become overbought after strong rallies and profit taking increases.”

The Hang Seng China Enterprises Index fell to 9,571.06 while the Hang Seng Index dropped 0.3 percent. The two gauges extended losses after their 14-day relative strength indexes jumped above 70, a signal to some traders that a rally is about to reverse. The Shanghai Composite Index rose less than 0.1 percent at the close.

Government Stimulus

The H share index climbed as much as 1.7 percent earlier Tuesday after Fed Governor Lael Brainard’s comment that there’s no reason to rush to raise borrowing costs helped fuel an advance by U.S. equities.

“The morning jump may be attributed to yesterday’s tumble of over 3 percent, before Brainard’s comments lifted U.S. stocks overnight,” said Bernard Aw, a strategist at IG Asia in Singapore. He said there were “concerns that better Chinese data may reduce the need for additional government stimulus as well as from the PBOC.”

China’s industrial production rose 6.3 percent from a year earlier in August, the National Bureau of Statistics said Tuesday, compared with a median estimate of 6.2 percent in a Bloomberg survey of economists. Retail sales climbed 10.6 percent last month, while fixed-asset investment increased 8.1 percent in the first eight months of the year.

China Galaxy Securities Co. retreated 2.6 percent at Tuesday’s close in Hong Kong, pacing declines by brokerages. A measure of the property developers listed in the city dropped 0.8 percent as Hang Lung Properties Ltd. fell for a second day after a five-week winning streak.

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