Overbought markets 'take breather', more gains to depend on cash flow
SHANGHAI - Mainland stocks fell for the first time in eight days, led by material and agriculture producers, on concern that this month's rally that drove the benchmark index to a bull market was excessive relative to the outlook for earnings.
Yanzhou Coal Mining Co slid 6.1 percent, snapping an eight-day, 58 percent gain. Gansu Dunhuang Seed Co led declines among agriculture producers and smaller-company stocks after cotton and corn prices dropped on speculation that investors are trimming their bets on further gains. Citic Securities Co and Haitong Securities Co led advances among brokerages on speculation that higher stock trading volumes will boost revenue. "The markets are overbought and are taking a breather after the post-holiday gains," Zhou Xi, a strategist at Bohai Securities Co, said. "There's a good chance the liquidity-driven rally will continue as sentiment is good."
The Shanghai Composite Index lost 0.54 percent to 2955.23 on Monday. The measure briefly rose above 3000 on Monday for the first time since April. It has rebounded 25 percent from the 2010 low on July 5. The CSI 300 Index declined 0.7 percent to 3306.16 on Monday.
Energy producers have rallied the most among the 10 industry groups in the CSI 300 Index this month, gaining 23 percent. They now trade at 20 times reported earnings, compared with 15.6 times at the end of September, according to weekly data compiled by Bloomberg.
A gauge of financial stocks rose 0.6 percent on Monday. Investors traded 31.8 billion shares on the Shanghai and Shenzhen exchanges on Friday, the most since Nov 26, 2009, according to data compiled by Bloomberg.
The Shanghai Composite had gained 14 percent in the seven days before Monday, the longest winning streak since the eight days to Nov 10, 2009. The Shanghai measure rose 8.5 percent last week, the most since Feb 6, 2009, after the markets were shut the prior week for a holiday as global stocks rallied. Even with this month's rally, the Shanghai measure is still down 9.8 percent this year after the government raised banks' reserve requirements and curbed lending to cool the economy and avert asset bubbles.
"Some investors may want to lock in profit because they are unsure whether the rally will continue," said Zhang Qi, an analyst at Haitong Securities Co. "The rally was driven by liquidity, so further gains depend on new cash flow into the stock market."
The nation's equities may also extend this month's rally as record household deposits pave the way for more investment into Asia's second worst-performing equity market this year.
"We've seen money chasing real estate, commodities, art and even garlic this year," said Leo Gao, who helps oversee $600 million at APS Asset Management Ltd in Shanghai. "If you look around, nothing is cheaper than stocks."
China's household deposits increased 1.04 trillion yuan ($156 billion) in September, the biggest rise in seven months, to 29.9 trillion yuan.
Hang Seng declines
Hong Kong's Hang Seng Index fell by the most in more than a month, led by banks and developers. Commodity producers declined on lower oil and metal prices.
The Hang Seng Index fell 1.2 percent to 23469.38 on Monday, the steepest drop since Sept 8.
The Hang Seng China Enterprises Index of H shares of mainland companies slid 1.4 percent to 13420.32 on Monday.