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

PUBLISHED : Wednesday, 20 December, 2017, 9:21am
UPDATED : Wednesday, 20 December, 2017, 10:38pm

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
Ken Chen Hao, KGI Securities

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.

Yonghui Superstores, in which Tencent Holdings agreed to buy a 5 per cent stake, jumped 7.3 per cent to 10.95 yuan, the highest close since its listing in 2010.

In Hong Kong, stocks snapped a two-day gain, taking the cue from the pullback in US equities on an unexpected glitch of the tax bill. The Republican-controlled House of Representatives passed the highly anticipated bill as expected. However, the House will have to vote again after three provisions in it were found to have violated Senate budget rules.

The Hang Seng Index retreated 0.1 per cent, or 19.57 points, to 29,234.09 after swinging between gains and losses for most of the day. The Hang Seng China Enterprises Index, known as the H-share gauge, fell 0.3 per cent.

AAC Technologies Holdings, which derives 47 per cent of its revenue from Apple, declined 0.7 per cent to HK$139.60, after the maker of iPhones closed 1.1 per cent lower in overnight trading.

Gaming stocks bucked the sell-off after Macquarie raised its forecasts for Macau’s gaming revenue growth in 2018 and 2019. Sands China advanced 1.6 per cent to HK$40.70, and rival Galaxy Entertainment Group added 1.1 per cent to HK$62.75.