Hong Kong, China stocks snap winning streaks as inflation picks up

Hong Kong and China shares snapped winning streaks on Thursday after divergent Chinese April consumer and producer price data sparked a rotation out of growth-sensitive counters as investors braced for more economic data in the coming days.

China’s April annual consumer inflation quickened to 2.4 per cent, more than a 2.3 per cent Reuters consensus, while producer prices saw a 14th straight monthly decline, dropping 2.6 per cent, worse than an expected 2.3 per cent dip.

The Hang Seng Index slipped 0.1 per cent to 23,211.5 points after closing on Wednesday at its highest since February 20. The China Enterprises Index of the top Chinese listings in Hong Kong fell 0.2 per cent. It was the first loss in five days for both.

The CSI300 fell 0.6 per cent from Wednesday’s six-week closing high in its first loss in six sessions. The Shanghai Composite Index also closed down 0.6 per cent, ending at 2,233 points in its first loss in five sessions.

Losses came in the strongest Shanghai volume since April 19. Hong Kong turnover was just below its average in the last month but some 14 per cent below Wednesday’s level, with short selling accounting for 9.1 per cent of total turnover.

“Uncertainty is never good for the market. The bigger-than-expected drop in April’s producer prices is worrying, but there is probably not much room to ease policy given that inflation was a little stronger than expected,” said Cao Xuefeng, Chengdu-based head of research at Huaxi Securities.

The bigger-than-expected drop in April’s producer prices is worrying
Cao Xuefeng, Huaxi Securities

Consumer staple counters such as Want Want China were weaker. Want Want slid 1.6 per cent and was also hit by a downgrade by Bank of America-Merrill Lynch analysts by two notches from “buy” to “underperform”.

BofA-ML analysts also downgraded Tingyi from buy to neutral, pushing its shares down 0.4 per cent, while Hengan International jumped 5 per cent to a record high after BofA-ML upgraded its stock from neutral to buy.

They cited its improving inventory and new products, while its snack business appears to have returned to growth in the first quarter.

Hengan is up 21 per cent and Want Want is up more than 11 per cent in 2013, while Tingyi is down more than 7 per cent.

GCL-Poly Energy slid 2.5 per cent in Hong Kong after the European Commission agreed on Wednesday to impose punitive import duties on solar panels from China in a move to guard against what it sees as Chinese dumping of cheap goods in Europe.

Sentiment, particularly in the onshore Chinese markets, were aggravated on Thursday by a front-page editorial in the official China Securities Journal suggesting the country’s new leaders could tolerate growth at an annual average 7 per cent until 2020.

The Chinese central bank was a further source of uncertainty, issuing bills for the first time since 2011, auctioning 10 billion yuan (HK$12.53 billion) of three-month bills. The People’s Bank of China also drained 92 billion yuan this week.

Growth-sensitive counters, particularly property-related sectors, were weaker. Anhui Conch Cement shed 2.1 per cent from Wednesday’s 2½-month closing high in Hong Kong. Its Shanghai listing dived 3.8 pecent.

China Vanke lost 1.3 prcent in Shenzhen, while China Overseas Land sank 1.2 per cent in Hong Kong and Poly Real Estate shed 2 per cent in Shanghai.

Beijing is due to post April money supply and loan growth data any day between April 10 and 15.

Chinese banks likely made 800 billion yuan in new loans in April, down from 1.06 trillion yuan in March as the government sought to curb lending for some sectors while factories gripped by excess capacity cut back on borrowing.