China stocks in worst quarterly losing streak

BEIJING: China’s stocks are limping toward their longest stretch of quarterly losses since the global financial crisis as investors fret about trade tension with the US and a slowing economy.

The Shanghai Composite Index is set for a fourth quarterly drop, the longest slide since 2008. China’s smallcaps were battered amid tighter liquidity, and perhaps the only saving grace has been a September rebound led by large, old-economy stocks, on speculation the government may boost stimulus spending.

The yuan weakened for a second quarter, and bond yields rose.

The stock losses saw China lose its spot as world’s second biggest equity market in August, overtaken by Japan. Global investors are increasingly sharing in the pain after MSCI Inc added mainland shares to its indexes this year and as FTSE Russell prepares to include them in 2019.

“Given there is so much negative news surrounding the market this year, investor appetite is increasingly risk-averse,” said Zhang Gang, an analyst with Central China Securities Co.

“So investors rushed to blue chips and walked away from small-cap stocks because small caps are relatively high in valuation and there’s a lack of liquidity and growth momentum.”

While China equity analysts expect stocks to rebound in the final three months of 2018, they were wide of the mark in their predictions for the previous two quarters.

“Macro policies to uphold stability have begun to appear so there will be a rebound, but its strength and stability remain to be seen and depend on how polices are carried out,” said First Shanghai Securities Ltd strategist Linus Yip in Hong Kong.

The Shanghai Composite Index is set to drop about 1% in the third quarter. The gauge, one of the worst performers in the world this year with a 15% retreat, hit its lowest since November 2014 on Sept 17.

That said, it is set for a gain of about 3% in September as investors bet the government will spend more on building projects.

The SSE 50 Index has been one of the few bright spots in China’s markets. The gauge of some of China’s larger companies is in line for a 5.4% advance in the third quarter, its best showing this year.

China Railway Construction Corp, New China Life Insurance Co and PetroChina Co were the leading gainers. The ChiNext Index of small-cap and tech shares is set to drop 13% in the third quarter after a 15% slide in the previous three months.

Meanwhile, the onshore yuan slumped for a second quarter, down 3.8% in the three months through September. The currency has faced pressure from the trade dispute and bets China’s central bank would ease monetary policy further to shore up growth.