China Stocks Halt Longest Winning Steak Since July on Inflation

  • China's consumer-price index grows 1.6%, less than forecast
  • Great Wall, Leshi lead declines for tech, consumer companies

China’s stocks fell for the first time in six days, dragged down by technology and consumer companies, after inflation data signaled more weakness in the world’s second-biggest economy.

The Shanghai Composite Index slid 0.9 percent to 3,262.44 at the close, halting the longest stretch of gains since July. Great Wall Motor Co. and Leshi Internet Information & Technology Corp. slumped more than 4 percent. The consumer-price index rose 1.6 percent in September, compared with the 1.8 percent median estimate. The producer-price index fell 5.9 percent, extending its streak of negative readings to 43 months.

“China is still in an industrial deflationary trajectory,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai, who’s adding to stock holdings. “The government will continue to stimulate growth through monetary and fiscal policies, probably at a measured pace.”

With consumer inflation well below the government target of 3 percent all year, the central bank has further capacity to spur lending even after cutting interest rates five times since November. The government data follow a trade report on Tuesday that showed a bigger-than-estimated plunge in imports in September and puts more pressure on policy makers to add to stimulus to meet their 7 percent growth target for the year.

Fund Manager

The CSI 300 Index retreated 1.1 percent. The Hang Seng China Enterprises Index fell 1 percent, while the Hang Seng Index lost 0.7 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, slid 0.8 percent in New York on Tuesday.

Wednesday’s loss for the Shanghai gauge halted a 11 percent rebound since an August low. The rally has been fueled by speculation China’s central bank will ease monetary policy and policy makers may introduce more measures to boost growth. The government announced over the weekend it will expand a relending trial to nine more cities and provinces, while Premier Li Keqiang said policy makers will increase fiscal support for shantytown redevelopment.

Unprecedented government efforts to stabilize share prices will also probably prove successful, said Jeff Yeh, whose Yuanta New China Fund has returned about 22 percent this year, outperforming 99 percent of Greater China equity funds tracked by Bloomberg. The Shanghai Composite’s equity volumes have more than doubled from an almost one-year low on Sept. 30, while volatility has slipped from the highest levels since 1997.

Automakers Drop

“Chances of the China stock market stabilizing are high,” said Yeh, who oversees about $41 million in the fund. The money manager is rebuilding his holdings of Chinese technology companies after they turned from bull-market leaders into the biggest losers of the subsequent crash.

Gauges of consumer-discretionary and technology stocks fell at least 1.6 percent for the biggest declines among 10 sub-indexes in the CSI 300. Great Wall Motor, the largest maker of SUVs, tumbled 7.4 percent for its biggest loss since Sept. 15. FAW Car Co. slid 5 percent. This year, the China auto association is predicting sales to grow at the slowest pace in four years as consumers canceled or postponed purchases amid the economic slowdown.

Leshi Internet, the biggest mainland-listed Internet video provider, lost 4.5 percent, paring a rebound to 42 percent since the August low. The technology sub-index in the CSI 300 has been best performer over the past month with a 19 percent advance.

Xiamen Tungsten Co. jumped by the 10 percent daily limit after the company said it will cap rare-earth product output at about 90 percent of the 2015 quotas set by the government. 

Margin traders increased holdings of shares purchased with borrowed money for a fourth day on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 592.4 billion yuan ($93.4 billion).

— With assistance by Shidong Zhang

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