China Stocks Halt Hong Kong Rally as Valuations Reach 2016 High

  • Hang Seng Index pulls back from the cusp of a bull market
  • Market can return to gains as China to back growth: Hengsheng

Chinese stocks in Hong Kong fell for the first time in seven days on concern the recent rally was excessive, with energy and financial companies leading losses.

The Hang Seng China Enterprises Index fell 1.1 percent at the close in Hong Kong after a 6.5 percent advance over the previous six days that sent the gauge to a three-month high. China Petroleum & Chemical Corp. dropped the most in two weeks following a decline in crude futures. The benchmark Hang Seng Index pulled back after a six-day advance that took its rebound from a February low to 19 percent.

Tuesday’s losses come after valuations on the Hang Seng China gauge climbed to this year’s high, amid data suggesting the Chinese economy is stabilizing and speculation that policy makers will offer stimulus. Gross domestic product expanded more than expected in the second quarter, while monthly aggregate financing and retail sales also beat expectations, according to data released Friday.

“The market needs to digest some profit-taking pressure after the good run-up on stabilizing economic data,” said Dai Ming, a fund manager at Hengsheng Asset Management Co. in Shanghai. “In the short term, the market still has the momentum to trend up as the government isn’t likely to let economic growth slow too sharply.”

Share Valuations

The Hang Seng China Enterprises Index, which closed at 8,988.79, traded at 7.8 times its projected earnings for the current year Monday, compared with this year’s average of 7 times, according to data compiled by Bloomberg. The Hang Seng Index fell 0.6 percent after coming within 1 percent of a bull market Monday.

China Petroleum, also known as Sinopec, lost 2.1 percent and PetroChina Co. retreated 1.8 percent in Hong Kong as oil traded around $45 a barrel before U.S. data forecast to show crude stockpiles fell for a ninth week. Ping An Insurance Group Co. dropped 1.8 percent to end a six-day rising streak, its longest this year. Anhui Conch Cement Co., China’s largest cement maker, slipped for a third day.

Cathay Pacific Airways Ltd. slumped the most in three weeks after the Hong Kong-based carrier said its performance in the first half of 2016 was below expectations.

Mainland Shares

The Shanghai Composite slipped 0.2 percent to a one-week low, while the ChiNext index of small-company added 1.1 percent in Shenzhen.

A gauge of consumer-staples companies, the best-performing industry group over the past three months, led the drop in mainland trading. Kweichow Moutai Co., the nation’s biggest maker of baijiu liquor, lost 2.6 percent to pare this year’s advance to 41 percent. Other liquor makers also fell. Wuliangye Yibin Co. slumped 4.2 percent, while Luzhou Laojiao Co. sank 3.6 percent.

— With assistance by Shidong Zhang

Before it's here, it's on the Bloomberg Terminal.