China’s Stocks Fall to Pare Biggest Monthly Advance Since 2007

China’s stocks fell, paring the benchmark index’s biggest monthly advance since April 2007, as technology shares slumped and a gauge of utilities dropped after surging to five-year highs.

Huadian Power International Corp. plunged 6.6 percent in Shanghai. A gauge of small-company stocks entered a so-called correction with a 12 percent loss from this month’s peak. PetroChina Co. dropped 2.9 percent in Hong Kong. Citic Securities Co. and Haitong Securities Co. gained at least 4 percent in Shanghai, extending a rally in December to more than 65 percent. Anhui Conch Cement Co. jumped 10 percent after changing its shareholding structure.

The Shanghai Composite Index fell from a five-year high, losing 0.1 percent to 3,165.81 at the close. The index, which earlier gained as much as 0.7 percent, has rallied 18 percent this month, the most among major global benchmark gauges. Trading volumes were 9.5 percent below the 30-day average for this time of day. Tomorrow is the last trading day of the year.

“Aside from corrections every now and then, the uptrend will continue,” said Mao Sheng, an analyst at Huaxi Securities Co. in Chengdu. “The economy is set to recover gradually and there’s no change in the direction of government policies.”

The Hang Seng China Enterprises Index slid 1.5 percent, after surging 4 percent yesterday for the biggest gain in a year, dragged down by oil producers. The Hang Seng Index lost 1.1 percent. The CSI 300 Index advanced 0.1 percent, extending this year’s gain to 48 percent.

Shanghai Rally

The Shanghai Composite has rallied 50 percent this year, compared with a 9.6 percent gain for its Hong Kong counterpart. The Shanghai index is headed for its biggest yearly gain since 2009, bolstered by a trading link with Hong Kong and expectations the government will further ease monetary policy after unexpectedly cutting interest rates last month. Recent data have been weak, with a factory index falling to a seven-month low in December and November industrial profits slumping by the most in two years.

Offical manufacturing data for December will be released on Jan. 1. Economists forecast a median reading of 50 for this month, compared with November’s 50.3, according to data compiled by Bloomberg.

Foreign investors turned net sellers of mainland stocks through the Hong Kong link today, adding 0.41 billion yuan to the daily quota of 13 billion yuan. Trading of Hong Kong shares through the link is closed until Jan. 5, according to the Shanghai Stock Exchange.

Smallcaps Slump

The ChiNext index, dominated by technology, drug and alternative-energy stocks, fell 2.6 percent, taking its decline since its Dec. 15 high to 12 percent. Some investors consider a decline of more than 10 percent as a correction. East Money Information Co. lost 9.4 percent while Huayi Brothers Media Corp. retreated 4.7 percent, the biggest drags in the index. The ChiNext trades at 32 times 12-month projected earnings, compared with the Shanghai Composite’s 12 times.

Goertek Inc. an Apple Inc. supplier, paced losses for technology companies, sliing 3.9 percent. Neusoft Corp. fell 5.8 percent.

“Investors prefer big caps,” said Zeng Xianzhao, chief executive officer at Nuoding Asset Management. “Small caps are too expensive.”

A measure of utilities in the CSI 300 slid 3.3 percent, paring this month’s rally to 29 percent. Huaneng Power International Inc. dropped 3.5 percent, trimming the December advance to 29 percent. Citic Securities said at the end of October that reform expectations will boost power producers in the medium term.

Brokers Rally

Energy shares led declines in Hong Kong, with China Oilfield Services Ltd. sliding 4.4 percent. Oil traded near the lowest price in more than five years amid speculation that U.S. crude inventories will stay at the highest level since June, offering no relief from a global glut.

Anhui Conch rallied to a three-year high in Shanghai and gained 6 percent in Hong Kong amid optimism over reform of state-owned enterprises. Anhui Investment plans to convert a 51 percent stake in parent Conch Holdings into a direct holding of the company. The move simplifies Anhui Conch’s shareholding structure, Jefferies Group LLC analysts wrote.

A gauge of financial shares in the CSI 300 jumped 2.5 percent today, extending gains this month to 38 percent, the best performer among the industry groups. Guoyuan Securities Co. led a rally for brokerages, adding 4.3 percent after announcing yesterday it will further expand its margin trading and short selling businesses.

Policy Outlook

The outstanding value of margin trading rose to a record 687.7 billion yuan on the Shanghai Stock Exchange yesterday, according to the data from the bourse.

The largest U.S. exchange-traded fund that tracks mainland Chinese stocks posted a record eighth week of inflows amid speculation that easing of monetary policies will help extend equity gains in Asia’s biggest economy.

Investors added $34.6 million to the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF last week to complete the longest stretch of asset gains since its November 2013 debut, according to data compiled by Bloomberg. More than $300 million has been put into the fund since the beginning of last month as it soared 35 percent.

China needs more easing policies to ensure economic stability in 2015 with more infrastructure investment and lower financing costs, the China Securities Journal said in a commentary today.

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