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Hong Kong - Chinese stocks fell, extending last week’s plunge, as factory-gate price data fueled concern the economic slowdown is deepening.
The Shanghai Composite Index slid 2.4% to 3 109.95 at the break, led by energy and material companies. The producer price index slumped 5.9% in December, extending declines to a record 46th month, data over the weekend showed. The Hang Seng China Enterprises Index tumbled 3.5% at noon, while the Hang Seng Index fell below the 20 000 level for the first time since 2013.
“Pessimism is the dominant sentiment,” said William Wong, head of sales trading at Shenwan Hongyuan in Hong Kong. “The PPI figure confirms the economy is mired in a slump. Market conditions will remain challenging given weak growth and volatility in external markets and the yuan’s depreciation pressure.”
Extreme market swings this year have revived concern over the Communist Party’s ability to manage an economy set to grow at the weakest pace since 1990. Policy makers removed new circuit breakers on Friday after blaming them for exacerbating declines that wiped out $1trn this year.
China not facing "cataclysmic" economic slowdown
China isn’t facing a "cataclysmic" economic slowdown and last week’s turmoil was more due to the bad design of the circuit breakers, according to Nobel-prize-winning economist Joseph Stiglitz.
The offshore yuan erased early losses after China’s central bank kept the currency’s daily fixing stable for the second day in a row, calming markets after sparking turmoil last week. While state-controlled funds purchased Chinese stocks at least twice last week, according to people familiar with the matter, there was little evidence of intervention on Monday.
“Sentiment is very poor,” said Castor Pang, head of research at Core Pacific Yamaichi Hong Kong. “I don’t see any clear signs of state buying in the mainland market. Policy makers have to be cautious in using intervention as they can’t rescue the market all the time.”
Officials went to extreme lengths to support shares in the midst of a $5trn rout last summer, including ordering stock purchases by state funds, suspending initial public offerings and allowing trading halts that froze hundreds of shares. The China Securities Regulatory Commission said late on Thursday that it was suspending the circuit-breakers programme, adding to concern policy makers are struggling with how to contain turmoil in the nation’s financial markets.
The circuit breakers, which caused local stock exchanges to close early on two days last week after stocks plunged to a 7% limit, weren’t as well designed as they could be, Stiglitz, a professor at Columbia University in New York, said in a Bloomberg Television interview in Shanghai.
Weak data
The CSI 300 Index slid 2.4%, dragged down by losses of at least 3.8% for energy and material shares. Aluminum Corp. of China Ltd. and China Shenhua Energy slumped more than 4%.
Producer prices fell more than than forecast last month, while the consumer price index rose 1.6%, matching economists’ estimates. Saturday’s report from the National Bureau of Statistics follows recent data showing slowing exports and manufacturing. The official purchasing managers index signaled weakness for a fifth straight month in December.
The Hang Seng index fell 2.5% to 19 952.63 on Monday, while the H-shares gauge dropped to the lowest level since October 2011. Trading volumes in Hong Kong were 49% above the 30-day average for this time of day and 11% higher in Shanghai. Historical 10-day volatility in the CSI 300 soared 31% last week to the highest level since September.
The People’s Bank of China on Friday ended an eight-day run of reductions to the reference rate that sent shockwaves through financial markets. The offshore yuan rose 0.14% to 6.6736 a dollar in Hong Kong on Monday, after declining as much as 0.37%.
It sank as low as 6.7618 last week, within 0.4% of a record 6.7850 seen in September 2010.
