China Stocks Pare Losses on Suspected Late Buying by State Funds

  • Copper, steel and coal producers lead declines in Shanghai
  • CLSA says Chinese stocks may retreat when NPC meeting ends

Chinese stocks pared losses in the last half an hour of trading as suspected state-backed fund buying offset declines by commodity producers after oil and metal prices slumped.

The Shanghai Composite Index closed 1.3 percent lower, after falling as much as 3.1 percent earlier. Index heavyweight Industrial & Commercial Bank of China Ltd. climbed 1.6 percent, with all the gains coming in the last 20 minutes, a pattern seen over the past week. Jiangxi Copper Co. plunged the most in six weeks to lead miners lower in the wake of an industrial-metals selloff.

The securities regulator has asked listed companies, mutual funds and brokerages to stabilize the market during ongoing annual policy meetings, two people with direct knowledge of the situation said Friday. The government support comes as plunging exports add to evidence of a deepening economic slowdown. Concern that earnings will deteriorate and a weakening yuan will spur capital outflows has made the Shanghai Composite the worst-performing global index this year with losses of 20 percent.

“The market is very short-term,” said Francis Cheung, a senior strategist at CLSA Ltd. in Hong Kong. “Near-term data is negative like trade and so there is selling pressure. The government is supporting the market for the National People’s Congress, so when it ends, we could see a pullback.”

The Shanghai Composite closed at 2,862.56, halting a six-day winning streak that was the longest stretch of gains since July. Trading volumes in the mainland Chinese city were 8.7 percent lower than the 30-day average, while those in Hong Kong slumped 31 percent.

The Hang Seng China Enterprises Index retreated 0.8 percent at the close, while the Hang Seng Index dropped 0.1 percent. The CSI 300 Index declined 1.2 percent, with gauges tracking material and energy stocks sliding at least 3.6 percent for the steepest losses among industry groups. The commodity sub-indexes have been the best performers over the past month.

Coal producers led declines for energy companies, with Yanzhou Coal Mining Co. and Shanxi Lu’an Environmental Energy Development Co. sliding at least 7 percent. PetroChina Co., another favorite of state funds buying, dropped 0.2 percent, paring a loss of as much as 4.4 percent.

The resumption of afternoon stock rallies, a common occurrence during the height of the government’s market rescue campaign in July, has presented traders with a quandary: Worsening economic data suggest stocks should fall, but state intervention provides an opportunity to profit from short-term gains. It’s yet another sign of how government meddling has undermined the leadership’s own pledge to increase the role of market forces in the world’s second-largest economy.

Market Consolidation

Steelmakers paced a retreat for material shares, with Angang Steel Co. dropping the most in two weeks. China’s top steelmakers’ group said the global iron ore market is grossly oversupplied, domestic demand is faltering and there’s a severe glut of steel. Jiangxi Copper plunged 7.3 percent. Copper fell in London, after sliding on Tuesday by the most since November.

“The overnight slump in commodities and crude oil had an impact on the market which is stuck in range-bound consolidation,” said Central China Securities Co.’s Shanghai-based strategist Zhang Gang. “There might be funds buying in the afternoon and pushing up the index again after all the negatives are factored in, but the market won’t be able to find a more clear direction until after the two sessions end,” said Zhang, who sees a near-term range of 2,800 to 2,900 for the index.

The Shanghai gauge’s plunge this year will reduce first-quarter gross domestic product growth by 0.1 to 0.3 percentage point, according to the majority of economists surveyed by Bloomberg News this month. Analysts expect GDP will grow 6.7 percent this quarter and 6.5 percent in the full year, scraping into the government’s targeted range of 6.5 percent to 7 percent, formally announced on Saturday by Premier Li Keqiang during the first day of the NPC. The legislative meeting ends March 16.

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