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Shanghai - China’s stocks fell to the lowest levels in 13 months amid concern capital outflows may accelerate as the economy slows and after some of the nation’s most-accurate forecasters predicted further declines for equities.
The Shanghai Composite Index dropped 2.4% to 2 867.52 at 1:02 p.m., heading for the lowest close since December 9, 2014 as turnover shrank. Energy producers and technology companies led declines. PetroChina and coal producers slumped after oil prices slid below $30 a barrel. Hundsun Technologies slumped more than 4%.
Huang Weimin, whose Chinese stock-index futures wagers returned more than 6 200% last year, says the Shanghai gauge could drop another 15% in the first half as slowing economic growth and a weaker yuan fuel capital outflows. Outflows jumped in December, with the estimated 2015 total reaching a record $1trn, more than seven times higher than the whole of 2014 based on Bloomberg Intelligence data dating back to 2006.
“The pressure for capital outflow and yuan’s devaluation is still quite big,” said Dai Ming, a fund manager at Hengsheng Asset Management in Shanghai, adding that he’s cutting equity holdings. “We haven’t seen signs of a pick-up in the economy and the first and second quarters could be challenging.”
The Shanghai index’s 43% rout since June has been accompanied by an economy losing momentum, similar to the global financial crisis, when the gauge lost more than two-thirds of its value from peak to trough over the course of a year. The index will bottom once it falls to 2,500 this year, said Michael Every, head of financial markets research at Rabobank Group in Hong Kong. That represents a further 15% decline from Monday’s close.
Thomas Schroeder, the managing director of Chart Partners Group who predicted in October that a rebound in Chinese stocks wouldn’t last, says the Shanghai Composite will drop to 2 400.
Huang, whose timely bets on the direction of share prices propelled his Yourong Fund to the top of the country’s performance rankings, advised investors to sell shares as the stock market could come under pressure this year from both the economic slowdown and a potential surge in the supply of new shares.
With 660 Chinese companies waiting to sell shares via initial public offerings, Huang said the additional supply could divert funds from existing shares.
China’s gross domestic product growth is seen slowing to 6.5% this year, from last year’s 6.9%. The nation’s top leadership has signalled in recent months it may tolerate further moderation as officials tackle delicate tasks such as reducing excess capacity, but nothing that could threaten President Xi Jinping’s goal of at least 6.5% growth through 2020.
Capital outflows
Capital outflows increased to $158.7bn in December, the second-highest monthly outflow of the year after September’s $194.3bn, according to estimates compiled by Bloomberg Intelligence.
The CSI 300 Index declined 2%. A measure tracking energy stocks lost 3% for the biggest decline among the 10 industry groups. PetroChina dropped 3.1%. China Coal Energy and Datong Coal Industry slid more than 4%.
The Hang Seng China Enterprises Index decreased 2.6%. The Hang Seng Index lost 1.9%, dragged down by financial and oil shares. The gauge slumped 13% this year as the city’s dollar peg came under pressure and short-term interest rates spiked.
Trading volumes in Shanghai were 31% below the 30- day average for this time of day. Margin traders reduced holdings of shares purchased with borrowed money for a record 17th day on Monday in Shanghai, with the outstanding balance of margin debt on the city’s exchange falling to 573.1bn yuan ($87bn) for the lowest level since September 30.
