China’s defence-related A-shares fall after weaker-than-expected military budget

Last year the People’s Liberation Army’s budget increased 10.1 per cent to 886.9 billion yuan, or about US$135.3 billion, compared to the US defence budget of US$597 billion that year

PUBLISHED : Friday, 04 March, 2016, 3:05pm
UPDATED : Friday, 04 March, 2016, 3:05pm

Defence-related shares trading on China’s A-share market fell sharply on Friday afternoon after the central government announced a lower-than-expected military budget.

China’s military budget will be increased by between 7 to 8 per cent this year from 2015 levels, China’s National People’s Congress spokeswoman Fu Ying said Friday morning.

Speaking at a press conference ahead of Saturday’s opening session of the national legislature in Beijing, Fu said the military budget growth for 2016 would be smaller than last year.

Last year the People’s Liberation Army’s budget increased 10.1 per cent to 886.9 billion yuan, or about US$135.3 billion, compared to the US defence budget of US$597 billion that year.

The defence sector on the A-share market is very sensitive to messages like this and may correct more in the short term
Eric Wu, hedge fund analyst

A gauge of the defence sector, compiled by mainland data supplier Eastmoney, fell by more than 3 per cent after the announcement, before it regained some losses after lunch and was trading 1.49 per cent lower in the afternoon.

“Most institutional investors were expecting at least 9 per cent growth in the military budget, given China’s active buying in weapons and the resettlement fee demanded for the decommissioned officers and soldiers,” said Eric Wu, a hedge fund analyst in Shanghai.

“The defence sector on the A-share market is very sensitive to messages like this and may correct more in the short term,” he said.

Harbin ZhongFei New Technology, a company mainly engaged in high-performance aluminium materials products, dropped 7.61 per cent to 59.62 yuan at 2.45 pm.

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