Update | China’s stocks fall as declines in Baoshan Steel and material companies temper gains in distillers
Raw material producers including Baosteel retreat on concern about China’s economic strength and industrial good prices, while fiery liquor Wuliangye leads consumer stocks to a record high
China’s stocks dropped for the first time in three days on Wednesday, as Baoshan Iron and Steel led the decline among material stocks on concern about the strength of the economy, offsetting gains in distillers of fiery liquor.
The Shanghai Composite Index slipped 0.3 per cent, or 8.93 points, to close at 3,287.61. The CSI 300 Index of big-caps fell 0.1 per cent while the ChiNext gauge of smaller firms lost 0.9 per cent. Hong Kong’s equity benchmark dropped slightly.
Mainland traders are switching out of the so-called cyclical companies whose earnings are tied to the strength of the economy, such as raw material producers, towards the end of the year on concern that China’s expansion will slow in 2018. Demand for industrial goods has already showed signs of weakening, with growth of producer prices from metals to construction materials decelerating to 5.8 per cent last month from this year’s high of 7.8 per cent in February.
“Fundamentals for these cyclical stocks are weakening as producer prices are decelerating, so expectations on industrial goods prices aren’t positive,” said Ken Chen Hao, a strategist at KGI Securities in Shanghai. “Under the risk-averse scenario, investors are buying into consumer stocks to hedge against risks.”
A gauge of material stocks slid 1.3 per cent on Wednesday in the steepest decline among the CSI 300’s 10 industry groups. Baoshan Steel shed 3.1 per cent to 8.24 yuan, trimming its gain to 30 per cent this year. China Northern Rare Earth Group High-Tech sank 2.6 per cent to 13.04 yuan and Jiangxi Copper slid 2 per cent to 17.31 yuan.
Under the risk-averse scenario, investors are buying into consumer stocks to hedge against risks
On the flip side, the sub-index of consumer stocks including liquor makers rose 3.2 per cent to a record close on Wednesday. Wuliangye Yibin, China’s second-largest distiller of the liquor baijiu by market value, surged 4.1 per cent to a record 81.60 yuan, heading for a 12 per cent gain this week. Jiangsu Yanghe Brewery Joint-Stock advanced 3.5 per cent to 117.95 yuan.