China H-Share Rally Falters as Inflation Fuels Liquidity Concern

  • PBOC has more reason to keep monetary policy from easing: KGI
  • Sinopharm, energy companies among measure’s leading decliners

China's CPI and PPI Inflation Rising

A rally by Chinese stocks in Hong Kong is running out of steam as technical indicators suggest gains are overheated and faster inflation increases concern about tighter monetary policy.

The Hang Seng China Enterprises Index fell less than 0.1 percent to 10,254.44 at the close after six days of gains. Sinopharm Group Co. was the leading decliner, dropping 2.8 percent, while petroleum shares also retreated. China Communications Construction Co. led gains, rising 1.6 percent to its highest price since November 2015.

The H-share gauge is Asia’s best performer this year, climbing some 9 percent, as improving earnings and signs of faster growth lured inflows. That propelled the gauge’s 14-day relative strength index to 75 on Monday, above the 70 level that signals to some traders shares are due to fall. China’s factory gate prices increased the most since 2011 last month, while consumer prices rose 2.5 percent, data showed Tuesday.

"The market is already overbought," said Ben Kwong, an executive director at KGI Asia Ltd. in Hong Kong. "CPI was higher than expected so that will provide another rationale for the central bank to keep its monetary policy from easing."

The Hang Seng Index closed little changed near its highest level since October. The Shanghai Composite Index was also little changed.

The People’s Bank of China has been tightening the screws on corporate leverage. With indicators from manufacturing to producer prices signaling an economic revival, the central bank has boosted the interest rates on its Medium-term Lending Facility, used by banks, and reverse-repurchase agreements.

  • Galaxy Entertainment Group Ltd. jumped 6.9%, the most since Sept. 1, to lead gains on the Hang Seng Index, while Sands China Ltd. climbed 4.9%. Gross gaming revenue in Macau may grow between 9% and 10.6% year-on-year in February, Sanford C. Bernstein & Co. analysts including Vitaly Umansky wrote in a note, citing their own data
  • Television Broadcasts Ltd. surged 9.2% as it resumed trading in Hong Kong. The city’s dominant free-to-air TV broadcaster sweetened the terms of its share buyback offer after it received an unsolicited bid for 29.9 percent of the company from TLG Movie & Entertainment Group
  • Brightoil Petroleum (Holdings) Ltd. rose 2.1% after saying it expects six-month profit to increase from a year earlier
  • Maanshan Iron & Steel Co. jumped 4.5% in Shanghai to its highest price since November 2015, Angang Steel Co. climbed 3.1% in Shenzhen. Iron ore futures in China rose to their highest close since July 2014 on Monday
(A previous version of this story stated an incorrect level for the H-share index.)
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