World-beating rally in mainland China stocks hits speed bump amid sell-off in once hot agriculture shares
- Traders cash out of pig and chicken farming companies to lock in profits
- Hong Kong’s Hang Seng Index declines for first time in five days as Xiaomi, Meituan Dianping retreat
A world-beating rally in mainland Chinese stocks stuttered on Wednesday, as traders offloaded holdings in agricultural companies, one of this year’s best-performing sectors, to lock in profits.
In mainland China, the Shanghai Composite Index dropped by less than 0.1 per cent, or 0.34 points, to 3,090.64 at the close, almost reversing a decline of as much as 1.2 per cent in volatile trading. In Hong Kong, the Hang Seng Index fell for the first time in five days, as Xiaomi and Meituan Dianping retreated.
The sell-off was mainly in shares of pig and chicken farming companies, whose stock prices have at least doubled this year on expectations of short supply amid an outbreak of African swine flu. Meanwhile, a rally in brokerages helped to put a floor in the broader market, with the Shanghai Composite still trading close to a nine-month high.
The momentum in mainland Chinese stocks, the world’s best-performing equity market this year with a 24 per cent gain, seems to have weakened recently, as investors scan the earnings season for clues on whether there will be more catalysts fuelling the rally.
“Investors have split views on market prospects, given that shares have already risen a lot now,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai. “The market is probably in for more wild swings going forward, as some investors are pulling out to see if earnings growth can catch up. They are worried that the current rally is mostly driven by valuation expansion rather than earnings, just as what we’ve seen in the agricultural sector.”
A gauge tracking Chinese agricultural companies slumped 2.6 per cent on Wednesday, paring gains to 48 per cent this year, according to data service provider Shanghai DZH. Among them, Hunan New Wellful, a pig breeder, declined by 4.4 per cent to 10.40 yuan after having surged by 221 per cent this year through Tuesday. Chuying Agro-pastora Group, a rival, sank by 5.6 per cent to 2.52 yuan. Shandong Minhe Animal Husbandry, a chicken farming company, lost 2.6 per cent to 29.31 yuan, trimming its year-to-date gain to 156 per cent for 2019.
Brokerages, on the other hand, bucked the dip on expectations that a soon-to-be launched technology board in Shanghai will boost revenues. China International Capital Corp estimated that as much as 100 billion yuan (US$14.9 billion) could be raised from selling initial public offering shares on the board this year.
Hong Kong’s Hang Seng Index shed 0.5 per cent, or 145.31 points, to 29,320.97 on Wednesday. The Hang Seng China Enterprises Index, or the H-share gauge, also dropped 0.5 per cent.
Xiaomi, the Chinese smartphone maker controlled by tycoon Lei Jun, declined by 4.6 per cent to HK$11.64 for its biggest decline since January. While the company swung to profit for 2018 according to earnings results released on Tuesday night, investors seemed to focus more on its lower than expected revenue and shipments. Its fourth-quarter sales were 4 per cent below a projection by Daiwa Capital Markets, and shipments of smartphones for the three-month period missed an estimate by 23 per cent, analysts led by John Choi at the brokerage said in a note.
Meituan, the Chinese food delivery service platform, lost 3.8 per cent to HK$50 as a six-month lock-up period for key investors ended.
Tencent Holdings, the Chinese social-media giant, remained unchanged at HK$370 before the release of its earnings results on Thursday.
