Chinese Stocks Slide Most in Week in Hong Kong on Inflation Data

  • Inflation slows to 1.3%, while producer prices extend declines
  • Shanghai Composite rebounds as brokers rally on link optimism

Chinese stocks fell the most in a week in Hong Kong as slower-than-forecast inflation increased concern demand is weakening in the world’s second-biggest economy. Mainland equities rebounded as brokerages extended gains.

The Hang Seng China Enterprises Index slid 1.8 percent to 10,314.74 at the close, dragged down by automakers and power producers. BYD Co. tumbled 8.3 percent and Great Wall Motor Co. fell 3.8 percent in Hong Kong. China Longyuan Power Group Corp. dropped 3.5 percent. The Shanghai Composite Index halted a four-day, 10 percent winning streak, dropping 0.2 percent to 3,640.49.

nov 10 shcomp

China’s consumer-price index rose 1.3 percent in October, official data on Tuesday showed, compared with the 1.5 percent median estimate in a Bloomberg survey. The producer-price index fell 5.9 percent, extending its streak of negative readings to 44 months. The report is the latest data to show monetary easing failing to arrest a deepening economic slowdown, as exports declined for a fourth month in October and factory gauges signaled the nation’s manufacturing still hasn’t bottomed out amid faltering global demand.

“There is a bit of a pullback after the recent rally with the CPI not helping,” said Gerry Alfonso, a trader at Shenwan Hongyuan Group Co. in Shanghai. “The low CPI figure is an indication that domestic consumption is perhaps a bit weaker than expected and that can create concerns. Banks are under-performing as the rally in recent days was very significant and investors are cashing in.”

Brokerages Rally

The CSI 300 Index slipped 0.2 percent. Hong Kong’s Hang Seng Index slid 1.4 percent. Trading volumes in Shanghai climbed 41 percent above the 30-day average on Tuesday.

The lingering deflation risks, along with weakening trade, open the door for additional stimulus as inflation remains about half the government’s target pace. President Xi Jinping’s government is struggling to keep economic growth on track even after cutting the main interest rate six times in the last year.

The Shanghai Composite trimmed a loss of as much as 1.1 percent as brokerages and stocks reflecting the “new economy” such as technology and health care rallied amid optimism over the start of the planned stocks link between Hong Kong and Shenzhen, home to many of China’s growth companies and the best-performing stocks.

Citic Securities Co., the nation’s biggest-listed brokerage, rose 1.4 percent in Shanghai, extending a rally over the past month to 42 percent. GF Securities Co. jumped 3.3 percent for a 20 percent gain this month alone.

Link Start

ChiNext stocks will be included in the link even as the timing of the start is uncertain, Liu Fuzhong, vice director of strategy and international relations at the Shenzhen Stock Exchange, said in an interview in Shanghai. The Shenzhen-listed ChiNext, which rose 0.8 percent on Tuesday, has gained 87 percent this year, compared with a 13 percent advance for the Shanghai Composite.

There is a “high conviction” that China will announce the timing of the link within the next two quarters, Citigroup Inc. analysts led by Jason Sun wrote in a note.

The Shanghai Composite’s relative strength index approached 70 on Monday, signaling overbought conditions. The index has rebounded 24 percent from this year’s low in August as the government took measures to end a $5 trillion rout and policy makers introduced stimulus to boost economic growth.

The Bloomberg China-US Equity Index slumped 1.5 percent in New York as the possibility that the Federal Reserve will raise interest rates as early as December weighed on equities.

Margin traders increased holdings of shares purchased with borrowed money for a fifth straight day on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 678.9 billion yuan ($107 billion).

— With assistance by Kyoungwha Kim

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