China’s stocks decline most in a week on bets

Hong Kong - Chinese stocks dropped the most in a week, with oil companies pacing declines, amid concern that rising odds of the US increasing interest rates will weaken the yuan and on investor anxiety that state-backed funds sold equities.

The Shanghai Composite Index declined 0.5% at 08:43, and the Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 0.9%. 

Offshore Oil Engineering retreated 2.1% to lead petroleum-related firms lower, as crude futures fell as much as 1.7% in New York amid an overhang in inventories. Sinopec Oilfield Service and China Petroleum & Chemical also decreased by at least 0.8%. The yuan slid to its lowest level since August 9.

Federal Reserve vice chairperson Stanley Fischer said over the weekend that a 2016 interest rate increase is still under consideration. 

Mainland stocks gained last week as takeover speculation buoyed property developers and regulators approved a stock-exchange link between Shenzhen and Hong Kong. The odds that US borrowing costs will rise by the end of the year climbed to more than 51% at the end of last week, from about 42% a week ago, data compiled by Bloomberg show.

“To stabilize the yuan, the People’s Bank of China may have to reduce liquidity in the domestic market,” said Hao Hong, chief strategist at Bocom International Holdings in Hong Kong. “The market will be consolidating in the short term.”

Investors also appeared to be spooked that Chinese state-backed funds were said to have sold banking shares last week.

China Securities Finance and other government-linked funds sold shares including Bank of Ningbo on August 16, said people with knowledge of the matter who asked not to be identified because the information isn’t public.

“Investors are still nervous about the state fund’s reported sell-down, which tends to reflect the government’s view on whether prices are getting too high,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai. “The national team may be seeking to prevent a stock bubble.”