China’s stocks fell the most in more than a week after ZTE Corp. canceled a share buyback plan and technology companies slumped on concern recent gains were overdone.
The Shanghai Composite Index declined 0.5 percent to 3,632.90 at the close, the steepest retreat since Nov. 2. ZTE, China’s second-biggest phone-equipment maker, and Leshi Internet Information & Technology(Beijing) Co., the largest mainland- listed Internet video provider, slid at least 2 percent. A gauge tracking technology stocks in the CSI 300, the best performer this year, fell 1.8 percent for the second-steepest loss among 10 industry groups.
Concern is increasing that Chinese stocks are overvalued after the Shanghai gauge rebounded 24 percent from the August low amid a worsening outlook for the economy and earnings. The stock measure’s 14-day relative strength index, tracking how rapidly prices have advanced or dropped during a specified time period, reached 69 on Wednesday, approaching the threshold of 70 that indicates stocks are overbought.
“The market needs to take a breather and consolidate here after a pretty decent run-up,” said Wei Wei, an analyst at Huaxi Securities Co. in Shanghai. “Lots of stocks, particularly small caps, are overbought technically and they are facing some profit-taking pressure.”
Valuation Gaps
Hong Kong’s Hang Seng China Enterprises Index halted a four-day losing streak, gaining 1.6 percent, as financial and energy companies advanced, while the Hang Seng Index rose 2.4 percent. The CSI 300 Index retreated 1 percent. The small-cap ChiNext index dropped 0.8 percent.
There are very few reasons for global investors to own China’s A shares given their premium to H shares trading in Hong Kong, Kevin Gardiner, global investment strategist at Rothschild Wealth Management, said in an online seminar on Wednesday. Dual- listed stocks are now 38 percent more expensive in the mainland than Hong Kong, according to the Hang Seng China AH Premium Index.
The technology sub-index has jumped 18 percent over the past month, adding to a 52 percent gain this year. East Money Information Co., which has the biggest weighting in the ChiNext, slumped 4 percent, the biggest loss since Oct. 28. Wangsu Science & Technology Co. lost 3.9 percent after rallying threefold over the past year.
Economy, Earnings
ZTE fell 2.1 percent in Shenzhen, paring this year’s rally to 26 percent. The company terminated a plan to buy back as much as 1 billion yuan ($157 million) of A shares because the stock market has become stable, according to a company statement.
After the market close, the People’s Bank of China reported that the broadest measure of new credit fell in October. Aggregate financing was 476.7 billion yuan, compared with a projection by economists for 1.05 trillion yuan and September’s reading of 1.3 trillion yuan. A report released a day earlier showed industrial output matched the weakest gain since the global credit crisis last month, while retail sales climbed 11 percent last month.
The data show monetary easing has failed to arrest a deepening economic slowdown, with inflation slowing more than forecast in October, exports declining for a fourth month and factory gauges signaling manufacturing still hasn’t bottomed out amid faltering global demand.
H Shares
Third-quarter earnings trailed analyst estimates at 68 percent of companies in the Shanghai Composite. Chen Li, Hong Kong-based China equity strategist at Credit Suisse Group AG, estimates 5 percent earnings growth for A-share companies this year and zero growth in 2016.
Margin traders increased holdings of shares purchased with borrowed money for a seventh day on Wednesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 698.6 billion yuan.
In Hong Kong, PetroChina Co. jumped 3.1 percent, halting a five-day losing streak. China Life Insurance Co. advanced 3.8 percent. Deutsche Bank AG strategist Yuliang Chang recommended investors buy H shares on the prospects for a cyclical recovery. Chang upgraded Chinese banks to overweight, while downgrading consumer staples and utilities.
--With assistance from Helen Sun in Shanghai.
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net To contact the editors responsible for this story: Allen Wan at awan3@bloomberg.net Chan Tien Hin
