Chinese stocks plunge with tumbling commodities prices

Chinese stocks fell the most in two months as tumbling commodity prices weighed on raw-material producers and concern grew that a pickup in economic indicators is faltering.

The Shanghai Composite Index slid 2.8 percent at the close, erasing gains for the week, as Shaanxi Coal Industry and Hainan Mining led a decline among energy and metals stocks. This comes just as a frenzy that had gripped Chinese commodity markets begins to abate, with October contracts for steel reinforcement bars slumping a record 9.5 percent this week. The Hang Seng China Enterprises Index fell for a fifth day, the longest run of losses this year.

The declines reflect pessimism on the economy, with a range of data coming in lower than forecast. Both private and official manufacturing gauges released in the past week missed predictions, while figures due Sunday are estimated to show that export growth was unchanged in April after a surprise 11.5 percent jump in March. The nation’s foreign-exchange reserves likely declined, according to a Bloomberg survey, in an indication of renewed capital outflows.

“Commodity resource stocks like coal and steel are suffering bigger losses,” said Ben Kwong, a director at brokerage KGI Asia in Hong Kong. “Investors are going back to fundamentals rather than speculation, so we expect the correction to continue. The market seems to be looking for an excuse to correct.”

The Shanghai Composite closed at 2,913.25, while the Hang Seng China gauge retreated 1.8 percent in Hong Kong. Trading volumes in Shanghai were 8.7 percent above the 30-day average. The Hang Seng Index slid 1.7 percent at the close, taking a weekly decline to 4.5 percent, the most since the period through Feb. 12.

“There are greater selling pressures as the Shanghai Composite moves closer to the 3,000 level,” said Yen Chiu, a sales trader at China Securities International Financial Holding Co. in Hong Kong. “It’s more of a change in sentiment ahead of a slew of economic data and weekend rather than concrete speculation or news affecting the market.”

Asian stocks fell for a fifth day on Friday, with the regional benchmark index set for its worst weekly loss in almost three months, as Japanese traders returned from a three-day holiday and investors awaited the monthly U.S. jobs report for clues on the strength of the world’s largest economy.

The MSCI Asia Pacific Index slid 0.5 percent to 126.88 as of 4:18 p.m. in Hong Kong, on course to drop 3.3 percent this week, the biggest weekly decline since February. Equity markets across the region have fallen this week, while the yen has weakened since Japanese stocks last traded on Monday. Korea, Indonesia, and Thailand markets were closed for holidays.

“We’ve turned a little bit cautious,” John Woods, chief investment officer for Asia-Pacific at Credit Suisse Private Banking, told Bloomberg TV. “One of the reasons why we’ve gone underweight equities recently is because valuations look stretched at the top of the range but also because the two interest-rate hikes we expect are not being fully priced in by the market.”

The global equity rally is faltering as investors gauge prospects for higher U.S. interest rates amid persistent signs of tepid to slowing growth in major economies. While Fed officials signaled in recent days that borrowing costs could rise as soon as June, futures traders assign only a 10 percent probability for such a move after recent data indicated the U.S. economy remains sluggish.

Japan’s Topix index slipped 0.1 percent. The yen traded at 106.96 per dollar. The Bloomberg Dollar Spot Index is heading for its biggest weekly advance in six months, buoyed by comments from Federal Reserve officials that a June U.S. rate increase is possible.

Bloomberg