Main­land shares de­cline most in two months, par­ing Novem­ber gains

China Daily (Hong Kong) - - BUSINESS - By BLOOMBERG

Main­land stocks fell the most in two months, amid con­cerns liq­uid­ity may tighten and as a tech­ni­cal in­di­ca­tor sug­gested the main­land mar­ket is over­heat­ing.

The Shang­hai Com­pos­ite In­dex fell 1 per­cent at the close, par­ing this month’s rise to 4.8 per­cent. Yanzhou Coal Min­ing Co led a gauge of en­ergy com­pa­nies lower on the CSI 300 In­dex, while Jiangxi Copper Co, Alu­minum Corp of China Ltd and An­gang Steel Co each dropped more than 3.3 per­cent. In­dus­trial com­modi­ties such as steel and iron ore ex­tended Tues­day’s slump. The Shang­hai eq­uity bench­mark’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.

China’s in­ter­est-rate swaps are head­ing for the big­gest monthly in­crease in two years on spec­u­la­tion that ris­ing in­fla­tion and the au­thor­i­ties’ plan to curb ex­ces­sive bor­row­ing will drive money rates higher. The Peo­ple’s Bank of China con­tin­ues to use longer term re­versere­pur­chase agree­ments in open­mar­ket op­er­a­tions, ef­fec­tively rais­ing the cost of funds in­jected into the fi­nan­cial sys­tem.

“The mar­ket is pretty sen­si­tive to any per­ceived tilt in the liq­uid­ity stance of the PBOC, par­tic­u­larly into month-end,” said Bill Bowler, a sales trader at Forsyth Barr Asia Ltd in Hong Kong. “Tight liq­uid­ity can re­ver­ber­ate across as­set classes. We’ve seen weak­ness in bond fu­tures and par­tic­u­larly com­mod­ity fu­tures, which could be feed­ing into stock mar­ket weak­ness.”

The PBOC may keep un­der­ly­ing liq­uid­ity rel­a­tively tight in the near term, with the oc­ca­sional nudge rais­ing in­ter­est rates to en­cour­age delever­ag­ing, Gold­man Sachs Group Inc. said in a note on Nov 29.

De­spite Wed­nes­day’s drop, the Shang­hai gauge capped its best month since March. Com­mod­ity pro­duc­ers and con­struc­tion com­pa­nies climbed in Novem­ber amid op­ti­mism that China’s au­thor­i­ties will lift fis­cal spend­ing to stim­u­late growth, while the roll­out of prop­erty curbs boosted the lure of eq­ui­ties. The Hang Seng China En­ter­prises In­dex also showed a monthly ad­vance as in­sur­ers surged.

the de­cline in the bench­mark Shang­hai Com­pos­ite In­dex on Wed­nes­day

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