Chinese Stocks Drop Most in Six Weeks in Hong Kong on Economy

  • Slumping Chinese credit growth, commodities drop also weigh
  • MSCI to add Baidu, Alibaba to its biggest stock indexes

Is China's Stimulus Effort Working?

Chinese stocks fell the most in six weeks in Hong Kong trading after commodity prices plunged and the nation’s broadest measure of new credit slumped.

Hong Kong’s Hang Seng China Enterprises Index slid 2.2 percent to 10,181.47 at the close, dragged down by oil companies and banks. China Construction Bank Corp., the nation’s second-biggest lender, and PetroChina Co., the largest energy producer, retreated at least 2.9 percent. The Shanghai Composite Index dropped 1.4 percent to 3,580.84.

Chinese stocks joined a global rout after commodities plunged -- as oil traded near $42 a barrel and copper approached a six-year low -- amid concern the nation’s slowdown will crimp demand globally. Aggregate financing slid to 476.7 billion yuan ($75 billion), the People’s Bank of China said after the market closed on Thursday. That was the lowest level in 15 months and less than half the median forecast of 1.05 trillion yuan.

“The global markets aren’t doing well and China’s economic fundamentals aren’t picking up,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. He recently increased his stock holdings to between 80 percent and 90 percent of assets.

Credit Growth

The credit growth data rounds out a week of mixed readings that have showed falling exports, tame inflation, slowing industrial output, and a rare bright spot in the form of increased retail spending. The readings underscore the government’s challenge to kick start growth in an economy weighed by overcapacity and debt.

The Shanghai Composite has risen 22 percent from the August low, spurred by monetary easing including six interest-rate cuts within a year and a rebound in margin debt. The Shanghai and Shenzhen stock exchanges will raise their margin requirements to 100 percent from the current 50 percent, according to a statement posted on the Shanghai exchange’s website after the close of markets. The move is aimed at strengthening risk management of the margin-trading business, it said.

Traders increased holdings of shares purchased with borrowed money for an eighth day on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 704 billion yuan.

Commodity Stocks

The CSI 300 Index declined 1.3 percent. The Hang Seng Index dropped 2.2 percent in Hong Kong. The H-shares gauge fell 3.6 percent this week, extending losses in 2015 to 15 percent. The Shanghai Composite, which slid 0.3 percent in the past five days, has risen 11 percent this year amid signs that the government’s unprecedented measures to stem a $5 trillion rout have stabilized equities.

In Hong Kong, China Petroleum & Chemical Corp., the biggest Asian refiner known as Sinopec, dropped 4.8 percent. China Merchants Bank Co. declined 1.7 percent. 

Gauges of material and technology stocks dropped at least 2.6 percent on the CSI 300 for the biggest loss among 10 industry groups in the mainland. Zinc producer Shenzhen Zhongjin Lingnan Nonfemet Co. slumped 6.6 percent and Leshi Internet Information & Technology (Beijing) Co., the biggest mainland-listed Internet video provider, lost 2.9 percent, extending a 4.3 percent loss.

Losing Momentum

“The Shanghai Composite Index is losing upward momentum amidst continued poor economic data,” Lim Say Boon, chief investment officer at DBS Bank Ltd. in Singapore, wrote in a report on Thursday. “Fundamentally, there is still no sign of a reversal of the downward pressure on economic growth. There is now a strong prospect of an uncomfortable end to a difficult year for the index.”

More Chinese firms are struggling to repay obligations after the yuan’s fall, the stock rout and speculation that the debt market is overheating. China Shanshui Cement Group Ltd. said it will fail to pay 2 billion yuan of securities. The company is at least the sixth this year to default in the local note market as a slowing economy drags on earnings.

MSCI Inc. said it will add 14 U.S.-traded Chinese stocks to its largest indexes, giving a boost to some of the country’s biggest technology companies. The American depositary receipts of companies from online retailer Alibaba Group Holding Ltd. to search engine Baidu Inc. will be listed in gauges including the MSCI China Index and MSCI Emerging Markets Index.

— With assistance by Shidong Zhang

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