China Stock Turmoil 2015

Stocks weighed as China producer prices signal ongoing deflation

China’s monthly producer price data indicates deflationary conditions persist in the industrial sector

PUBLISHED : Wednesday, 14 October, 2015, 7:49am
UPDATED : Thursday, 15 October, 2015, 10:36am

Mainland Chinese and Hong Kong markets retreated on Wednesday, as official Chinese inflation data, as measured by the producer price index, showed deflationary conditions persisting for a 43rd consecutive month in September, while consumer inflation came in below forecasts.

The Shanghai Composite closed 0.9 per cent lower at 3,262.44. Turnover shrank for a second day to 330.3 billion yuan from 334.8 billion yuan on Tuesday.

In Hong Kong, the Hang Seng Index fell for a second straight session, ending 0.7 per cent lower at 22,439.91. Turnover reached HK$72.99 billion, compared to the average daily turnover at HK$117.2 billion for the first nine months. The H-share Index, tracking mainland based companies, ended 1 per cent lower, shedding 103.27 points, to close at 10,334.42.

China’s producer price index (PPI) dropped 5.9 per cent in September, in line with market forecasts, marking the 43rd straight month of declines, according to official data released earlier Wednesday. The PPI remained unchanged from August.

Meanwhile, the consumer-price index rose 1.6 per cent in September, below an estimated 1.8 per cent increase by Reuters and The Wall Street Journal separately, compared with a 2 per cent increase in August.

“Today’s data point to persistent deflation pressures in China’s economy, “ said Jing Li, Greater China Economist for HSBC, in a research note on Wednesday.

Analysts said it was likely that some investors were pulling out of the equity market in favour of the safety of fixed-income.

“Both the earnings reports pressure from US and the gloomy inflation data from the mainland is weighing on the Hong Kong market, making the technical rebound after oversold even more fragile,” Hong Hao, the chief China strategist at Bocom International said.

China auctioned 10-year bonds worth 28 billion yuan (HK$34.16 billion) with a coupon rate at 2.99 per cent on Wednesday, the lowest level seen since 2008, reflecting a newfound appetite for fixed-income.

Among other mainland Chinese markets, the large-cap tracking CSI300 lost 1.1 per cent, or 38.93 points to close at 3,003.41. The Shenzhen Composite Index fell 1.2 per cent, or 22.97 points to 1,884.16. The Nasdaq-style ChiNext Index dropped 1.5 per cent, or 37.04 points to close at 2,342.04.

“Investors apparently started to factor in the possibility that sectors such as automobile or retailers might need to be more aggressive on discounts or other sales incentives to compensate for a possible increase in deflationary pressure,” Gerry Alfonso, director of trading at Shenwan Hongyuan Securities said.

Railway companies were among the few bright spots amid expectations that China and Britain are likely to sign cooperation agreements in high-speed railway construction programmes next week, during Chinese president Xi Jinping’s scheduled visit to the UK.

The Shanghai-listed shares of China High-Speed Railway Technology surged by their daily limit, rising 10%, while China Railway Construction’s shares were up 2 per cent.

In Hong Kong, Chinese shoe retailer Belle International Holdings fell 3.6 per cent to HK$7.07. The food and beverage producer Tingyi Holdings dropped 1.6 per cent to HK$13.92.