China Stocks Fall From Seven-Year High as Price Data, MSCI WeighKyoungwha Kim
China’s stocks fell from a seven-year high, led by industrial and financial companies, after inflation data signaled weaker demand and traders weighed whether MSCI Inc. will add mainland securities to its global indexes.
CRRC Corp., formed by merging rail companies CSR Corp. and China CNR Corp., plunged 9.3 percent. Haitong Securities Co. dropped more than 2 percent in Shanghai and Hong Kong. The consumer-price index rose 1.2 percent in May, data showed Tuesday, compared with an estimated 1.3 percent increase, while the producer-price index fell 4.6 percent, exceeding the forecast for a 4.5 percent drop.
The Shanghai Composite Index slid 0.4 percent to 5,113.53 at the close, dropping from the highest level since January 2008. The inflation data come a day after a trade report showed exports declining for a third month. Trading volumes in Shanghai were 27 percent above the 30-day average before MSCI decides on Tuesday in New York whether to add China’s locally traded shares in its equity benchmarks.
“A trio of growth engines -- exports, consumption and investments is all weak and argues for more aggressive stimulus to jump start the economy,” said Neil Lee, a Hong Kong-based analyst at Pedder Street Investment Management Ltd. “What’s heavily on the minds of traders today is also MSCI’s decision which is a close call. The market will stay very volatile.”
Chinese and Hong Kong stock indexes posted their biggest losses since May 28, with the CSI 300 Index falling 0.7 percent and Hong Kong’s Hang Seng China Enterprises Index sliding 1.6 percent by 3:42 p.m. The Hang Seng Index declined 1.1 percent.
The Shanghai Composite is valued at 25 times reported earnings, the most expensive relative to the MSCI All-Country World Index in seven years. The MSCI gauge is valued at 14.4 times.
China’s consumer prices rose at a slower pace in May and factory-gate deflation extended a record stretch of declines, underscoring tepid demand at home and abroad. The central bank is unlikely to aggressively ease following a property market recovery and the stock market rally, Bank of Communications Co. chief economist Lian Ping said at a briefing in Shanghai.
Gauges of industrial and financial shares in the CSI 300 both slid 1.6 percent for the steepest losses among 10 industry groups. China Railway Group Ltd. tumbled 7.9 percent, while China Railway Construction Corp. fell 6.9 percent.
Industrial Bank Co. slumped 2 percent. Southwest Securities Co. retreated 4 percent. Haitong Securities plunged 3.4 percent in Hong Kong.
Guotai Junan Securities Co. suspended margin trading of 21 securities and short selling of five stocks to avoid rapidly increasing risks in the stock market, the Securities Times reported, citing statements from the brokerage.
Margin traders increased holdings of shares purchased with borrowed money for a 11th day on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to a record 1.42 trillion yuan ($228.8 billion).
There is a “low probability” A shares will be added in MSCI indexes in the near term as there are still obstacles in areas such as market access, tax policies and capital controls, Minsheng Securities Co. analysts led by Zhu Zhenxin wrote in a note. They estimate $7.8 billion would flow into A shares based on limited inclusion and $154.5 billion based on full inclusion.
China, through its companies listed in Hong Kong, accounts for more than 25 percent of the emerging-market benchmark. It’s the biggest weighting in the gauge, followed by South Korea’s 15 percent and 13 percent for Taiwan, data compiled by Bloomberg show. MSCI has kept China’s so-called A shares out of its indexes due to limitations on their tradability.
Yuan-denominated stocks, if added, would make up less than 1 percent of the MSCI benchmark in the initial stage. A full inclusion, which is subject to China’s continued relaxation of trading restrictions, would boost China’s weighting to 38 percent, according to MSCI.
“People were chatting in the morning that MSCI’s inclusion may not be possible this time,” said Yen Chiu, a Hong Kong-based trader at Shenwan Hongyuan Group. “The market’s fluctuation will intensify after the main gauge breached the key 5,000 level.”
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