China’s Stock Rally Fizzles as Banks, Utility Shares Retreat

  • Bear-market rebound to continue at limited pace: Jinkuang
  • Statistics agency warns on new orders as PMI signals expansion

The biggest jump in Chinese stocks in almost three months petered out, led by a decline in banks and utility companies, as manufacturing data failed to ease concern about the nation’s economic outlook.

The Shanghai Composite Index slipped 0.1 percent at the close. The benchmark stock measure surged 3.3 percent Tuesday amid speculation the nation’s equities would be included in MSCI Inc.’s global benchmark indexes. Data Wednesday showed an official factory index stood at 50.1, around the line between expansion and contraction, while a non-manufacturing gauge fell from the previous month. The yuan traded near its lowest level in five years.

The Shanghai gauge capped a second monthly decline in May and is this year’s worst performer among 93 global indexes tracked by Bloomberg even after Tuesday’s rally, which was spurred by optimism an MSCI inclusion of mainland stocks in its indexes would broaden access to the nation’s equities and boost investment flows. While Wednesday’s official PMI data signaled improving factory conditions for a third month, the statistics authority flagged upcoming challenges for manufacturers as a gauge of new orders fell.

“It’s a bear-market rally and the rebound will probably continue, but at a limited pace,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai, who’s increased his stock holdings to about 30 percent of asset allocations. “The current macroeconomic backdrop of slowing growth and a possible devaluation in the yuan doesn’t support a sustained rally.”

The Shanghai Composite traded at 2,913.51 after changing direction at least 13 times during the session. The gauge extended its drop this year to 18 percent. The CSI 300 Index slid 0.3 percent. Trading volume in mainland shares was 46 percent above a 30-day average. Hong Kong’s Hang Seng China Enterprises Index was little changed at the close, while the Hang Seng Index lost 0.3 percent.

The official PMI for May matched April’s level and compared with the median estimate of 50 in a Bloomberg News survey of economists. The non-manufacturing PMI was at 53.1 compared with 53.5 in April. A separate PMI reading from Caixin Media and Markit Economics fell to 49.2 in May, matching economists’ estimates and down from 49.4 in April.

Agricultural Bank of China Ltd. retreated 0.9 percent and China Minsheng Banking Corp. lost 1.2 percent in mainland trading. Huaneng Power International Inc. slid 0.8 percent.

Shanxi Securities Co. added 3.9 percent, while Sealand Securities Co. advanced 0.9 percent. The two stocks jumped at least 9 percent on Tuesday amid expectations brokerages will benefit from a possible addition of Chinese shares in MSCI’s benchmarks.

Yuan Weakens

The odds that Chinese stocks would win MSCI inclusion have increased to 70 percent from 50 percent a month earlier after authorities issued new rules to curb trading halts and a clarification about beneficial ownership rules, Goldman Sachs Group AG said Tuesday.

The yuan fell 0.2 percent to 6.5888 per dollar in Shanghai. The currency slumped 1.5 percent in May, its biggest loss since August’s devaluation, as a gauge of the greenback’s strength surged the most since 2014.

— With assistance by Shidong Zhang

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