China's Stocks Fall Most in Three Weeks on Yuan, Economy Concern

  • Yuan weakens as PBOC cuts reference rate by most in six weeks
  • Early Chinese economic indicators signal deepening slowdown

China’s stocks fell, led by financial and industrial companies, after the central bank weakened the yuan by the most in six weeks and economic indicators signaled a deepening slowdown.

The Shanghai Composite Index slid 0.8 percent to 2,903.33 at the close, the most in three weeks. Citic Securities Co. and China Life Insurance Co. paced declines for financials, while China Communications Construction Co. slumped 2.3 percent. Private gauges of manufacturing and services fell to new lows, a reading of business confidence slipped, and interest in small and medium sized businesses deteriorated. The yuan slipped for a third day in Shanghai after the People’s Bank of China cut its daily reference rate by 0.17 percent.

Investors are turning cautious after the Shanghai index rebounded about 10 percent from a January low and approached the 3,000 level, according to Core-Pacific Yamaichi Hong Kong. China is preparing to host finance chiefs and central bankers from the Group of 20 nations later this week, while the National People’s Congress convenes its annual meeting early next month in Beijing.

“With the 3,000 level being a major psychological barrier, investors are cautious and may try to offload their holdings once the Shanghai gauge breaches above the level,” said Castor Pang, head of research at Core-Pacific Yamaichi.

The benchmark gauge closed above its 30-day moving average for the first time this year on Monday after the nation’s securities regulator appointed a new chairman. Still, it is the world’s worst performer in 2016 after Greek equities, plunging 19 percent amid concern the slowdown isn’t abating and a weaker yuan will exacerbate capital outflows.

The Minxin manufacturing index fell to 37.5 in February from 41.8 in January, while the non-manufacturing gauge fell to 37.5 from 43, according to the China Academy of New Supply-side Economics. Numbers below 50 indicate deteriorating conditions. If confirmed in official data for February that starts to roll out from March 1, weakness in the private gauges would suggest a slowdown in the nation’s old growth drivers may be deepening.

China will focus on boosting the quality of economic growth in the 2016-2020 period, the official Xinhua news agency reported Monday, citing a government statement after a Politburo meeting chaired by President Xi Jinping.

Index Target

HSBC Holdings Plc cut its year-end forecast for the Shanghai index by 18 percent to 3,200 amid concern the slowing economy will hurt earnings. Market volatility will remain “elevated” due to the lack of policy making coherence, Steven Sun, an equity strategist at HSBC, wrote in note dated Tuesday.

In Liu Shiyu’s first comments since taking over as chairman of the China Securities Regulatory Commission, he told senior officials at the regulator that its main tasks include strictly supervising the market and checking market-manipulation activities, according to people familiar with the matter. The CSRC’s tasks include actively guiding funds into stock market, said the people, who asked not to be identified as the matter isn’t public.

Gauges of financial, industrial and technology shares in the CSI 300 all dropped 1.3 percent for the steepest declines among 10 industry groups. while the large-cap index slipped 1 percent. China Life slumped 2.7 percent, while Citic Securities lost 2.2 percent. Ningbo Port Co. plunged 5.4 percent.

The Hang Seng China Enterprises slipped 0.6 percent, while Hong Kong’s Hang Seng Index lost 0.3 percent. Trading volumes in Shanghai were 4.1 percent above the 30-day average.

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