Chinese shares pare monthly advance

Hong Kong - Chinese stocks headed for their biggest drop in more than a month, as a technical indicator suggested the mainland market is overheating.

The Shanghai Composite Index fell 1% as of 08:02, paring this month’s rise to 4.8%. Yunnan Chihong Zinc & Germanium and Sichuan Road & Bridge, which rallied at least 25% this month through Tuesday, were among companies leading declines in Shanghai.

The equity gauge’s 14-day relative strength index on Tuesday was at its highest level since May 2015 and above the threshold some traders consider as being overbought. Volume on the CSI 300 Index was 50% above its 30-day average at the time of day, according to data compiled by Bloomberg.

“There is some profit taking after recent gains,” said Sam Chi Yung, senior strategist at South China Financial in Hong Kong. The rising turnover shows “people are interested in the stock market again since the government is trying to slow down speculation in the property sector.”

Mainland stocks have rallied from their January low, with the Shanghai measure rising more than 20%, as the economy showed signs of stabilization and the rollout of property curbs boosted the lure of equities.

Commodity producers and construction companies climbed in November amid optimism that China’s authorities will lift fiscal spending to stimulate growth, while turnover on the mainland has improved in recent weeks. Though shares declined on Wednesday, Shanghai’s index is headed for its best month since March.

The Shanghai Composite Index dropped to 3 248.76. The Hang Seng China Enterprises Index rose 0.2%, up 3.1% in November.

The Hang Seng Index is headed for a monthly drop as local property companies slumped on higher stamp duty and expectations the US Federal Reserve will raise interest rates in December. With the city’s dollar pegged to the greenback, borrowing costs track those of the US.

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