China Stocks Fall, Halts Longest Rally in Month

China’s stocks fell the most in two weeks, led by material producers and port operators.

Shanghai International Port (Group) Co. dropped 2.6 percent after gaining 95 percent since the Ministry of Commerce issued a statement on Aug. 22 reiterating that the city’s free-trade zone had won State Council approval on July 3. Aluminum Corp. of China Ltd. slumped the most in a month. China Merchants Bank Co. advanced 2.3 percent after raising 27.5 billion yuan ($4.5 billion) in a rights offer.

The Shanghai Composite Index fell 0.5 percent to 2,117.21 at 10:04 a.m. local time, poised for the biggest loss since Aug. 20. The index had risen for four days, the longest stretch of gains in a month, as material producers rallied on signs of economic improvement and port operators surged on speculation they would benefit from the government’s expansion of free-trade zones to make services a bigger part of the economy.

“The excitement over upcoming reforms such as free trade zones” has been priced in, said Du Liang, an analyst from Shanxi Securities Co. “There’s some time before the benefits will materialize. The economic data has been good, but investors are still trying to see if we’ve bottomed.”

The CSI 300 Index slipped 0.2 percent to 2,344.98, while the Hang Seng China Enterprises Index rose 0.8 percent. The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. added 0.7 percent in New York yesterday.

The Shanghai index has climbed 8.9 percent since reaching this year’s low on June 27, as reports ranging from industrial production to money supply signaled the economy is stabilizing. Government data released over the weekend showed a gauge of manufacturing climbing to a 16-month high in August. Official and private reports this week also showed an expansion in the services trade.

Trading volumes in the Shanghai index were 22 percent higher than the 30-day average for this time of day, according to data compiled by Bloomberg. It’s valued at 8.6 times its projected 12-month earnings, compared with the five-year average of 12.6 times, according to data compiled by Bloomberg.

(Corrects date when Shanghai free-trade zone was approved in second paragraph.)
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