Chinese Stocks Have Biggest Weekly Drop Since January's Rout

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China’s stocks posted their biggest weekly decline in almost three months amid concern that improving economic data will prevent further stimulus and corporate defaults will rise.

The Shanghai Composite Index slumped 3.9 percent this week, the most among global gauges, with technology and industrial companies pacing losses. The measure added 0.2 percent on Friday as gains by consumer companies countered losses by commodity producers after exchanges moved to cool trading in raw materials.

Wednesday’s plunge of as much as 4.5 percent by the Shanghai Composite punctured the calm in China’s markets that had prevailed since the authorities succeeded in ending a 23 percent rout in January. A gauge of volatility has climbed from its lowest level this year as turnover rebounded. The central bank is signaling less of an appetite for adding monetary stimulus following evidence of an acceleration in growth. At least seven firms have missed local note payments this year, already reaching the tally for the whole of 2015.

"The central bank’s attitude is starting to change and the room for further easing is limited by gains in housing and commodity prices," said Hao Hong, chief China strategist at Bocom International Holdings Co. in Hong Kong. "Investors are facing the possibility that the government will hold back this year from bailing companies out of defaults."

Commodity Crackdown

The Shanghai measure closed at 2,959.24. The Hang Seng China Enterprises Index lost 1.5 percent at 3:46 p.m. local time, with China Communications Construction Co. leading declines. The Hang Seng Index dropped 0.9 percent, paring its weekly gain to 0.6 percent.

A gauge of material producers sank 2.7 percent on mainland exchanges after exchanges in Shanghai and Dalian raised margin requirements for steel reinforcement-bar and iron ore contracts.

Xinyu Iron & Steel Co. plunged 8.3 percent, while China Hainan Rubber Industry Group Co. sank the most in two months. Cotton producer Xinjiang Sailimu Modern Agriculture Co. slumped by the 10 percent limit after the Zhengzhou Commodity Exchange urged prudent investment on cotton futures.

Among consumer shares, Huangshan Tourism Development Co. surged 7.4 percent, while Xinjiang Tianrun Dairy Co. gained 7.1 percent. Dashang Group Co., an operator of department stores, advanced 6.4 percent.