China Stocks Cap Weekly Loss as Volatility Drops to 20-Month Low

  • Market undergoing a short-term correction: Jinkuang strategist
  • CGN Power and Shenhua retreat after denying merger report

Chinese stocks capped their first weekly decline in a month, sending a measure of price swings to its lowest level since 2014, as consumer and energy companies retreated.

The Shanghai Composite Index declined 0.9 percent to 3,012.82 at the close, taking losses this week to 1.4 percent. Spirits maker Luzhou Laojiao Co. paced consumer staples lower, while Yanzhou Coal Mining Co. led energy companies down amid concern U.S. crude’s recent drop below $45 a barrel will weaken demand for alternative fuels such as coal. The Hang Seng Index decreased after entering a bull market on Thursday.

Friday’s decline comes amid easing volatility for the Shanghai Composite, which has traded in a narrow range around the 3,000-level over the past two weeks. A measure of the gauge’s 30-day price swings fell to the lowest since November 2014, suggesting the market may be taking a breather after stocks rose in the previous three weeks.

“The market faces some profit-taking pressure after surpassing the 3,000-point level and is undergoing a short-term correction as there’s no immediate catalyst,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai. “The government wants to keep the market stable and doesn’t want to see lots of stocks decline.”

The CSI 300 Index slipped 0.8 percent, while the Hang Seng China Enterprises Index of mainland companies traded in Hong Kong lost 0.3 percent. The Hang Seng Index declined 0.2 percent, paring a second weekly advance.

Consumer Staples

Gauges of Chinese consumer-staples, utility and energy stocks lost at least 1 percent. Luzhou Laojiao retreated 3.2 percent, trimming this year’s gain to 11 percent. Kweichow Moutai Co. dropped 2.1 percent, while Jiangsu Yanghe Brewery Joint-Stock Co. slid 2.8 percent.

In Hong Kong, Tingyi (Cayman Islands) Holding Corp. slid 2.7 percent. Bearish wagers on the stock soared to a record high since May amid concern China’s shift toward an economy driven by middle-class spending will leave some consumer companies behind.

Yanzhou Coal retreated 1.7 percent in Shanghai and Shaanxi Coal Industry Co. slid 2.8 percent. PetroChina Co. lost 0.7 percent as crude oil traded near a three-month low.

CGN Power Co. tumbled 5.4 percent in Hong Kong for its biggest loss in six weeks, and China Shenhua Energy Co. sank 2 percent after their parent companies said they haven’t held discussions on a merger. Bloomberg News reported Thursday that Shenhua Group Corp. had submitted a proposal to government regulators about a possible tie-up with China General Nuclear Power Corp.

Margin traders increased holdings of shares purchased with borrowed money for a fourth day on Thursday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 487.5 billion yuan ($73 billion), the highest since May 9.

— With assistance by Shidong Zhang

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