China’s stocks drop on overheating signal, as index approaches bull-market territory after a five-week winning streak
- The CSI 300 Index still advanced for a fifth straight week, the best run in two years, to take the gauge within 1.7 per cent of bull-market territory
- Consumer names slipped while gains in utilities limited losses
The CSI 300 Index retreated 0.4 per cent to 4,466.72 at the close on Friday. The Shanghai Composite Index lost 0.3 per cent, while the Shenzhen Component Index also slipped by that much. Financial markets in Hong Kong are closed for the 25th handover anniversary.
Consumer stocks led the decliners on the broader market, as appliances maker Midea and SAIC Motor dropped at least 2 per cent. Gains in utilities stocks limited the decline, with China Yangtze Power adding more than 5 per cent on a plan to buy two dams from the parent.
The 14-day relative strength index for the CSI 300, a gauge tracking the 300 biggest companies traded in Shanghai and Shenzhen, rose to 73 this week, surpassing the 70-point threshold that typically indicates the market is overheated and due for a breather.
“We’ll need to see further improvement in expectations about the economy and liquidity, given that the rebound has been going on for two months,” analysts at China International Capital Corp said in a note to clients on Friday. “Otherwise, we’ll be in for more volatility.”
The CSI 300 advanced 1.6 per cent for the week to near a four-month high, taking it within 1.7 per cent of bull-market territory. The five-week rally is the best run in two years. Stocks outpaced major global benchmarks in June as China further eased some pandemic curbs after ending a two-month lockdown in Shanghai.
A turnaround in official Chinese manufacturing and services sectors also buoyed optimism as recovery outlook brightened. That was also confirmed by an expansion in the private Caixin PMI manufacturing index on Friday.
In mainland trading on Friday, Midea slid 2.7 per cent to 58.79 yuan and SAIC lost 2 per cent to 17.46 yuan. BYD retreated 1.3 per cent to 329.20 and liquor produce Kweichow Moutai fell 0.8 per cent to 2,029.05 yuan.
Among the two debutants on the mainland’s bourses, machinery equipment maker Hubei Chaozhuo Aviation Technology surged 68 per cent to 69.50 yuan and semiconductor maker Shenzhen Techwinsemi Technology jumped 44 per cent to 38.22 yuan.