Chinese Stocks Fall in Hong Kong as Yuan Outlook Spurs Outflows

Beijing (Aug 17)  Chinese stocks fell, with a gauge of shares in Hong Kong retreating to an eight-month low, as foreigners pulled funds amid concern about the weaker outlook for the yuan and economic growth.

The Hang Seng China Enterprises Index dropped 0.9 percent to 10,962.24 at the close. Net outflows from Chinese and Hong Kong equities reached $531 million in the week to Aug. 12, the ninth week of sales out of the past 10, China International Capital Corp. said. Ping An Insurance (Group) Co. led losses by insurers as the government seeks to contain the fallout from blasts in Tianjin port. Airlines jumped in mainland trading, spurring a late-day rebound for the Shanghai Composite Index.

The yuan sank the most in 21 years last week after the government allowed markets greater sway in setting the currency’s level. China’s industrial production, investment and retail data all trailed analysts’ estimates, according to data released this month. The securities regulator signaled on Friday China Securities Finance Corp. will reduce the scale of its intervention in the stock market. The fund has become one of the most influential investors since a $4 trillion rout.

“Investors expect the depreciation of the yuan to continue,” said Sam Chi Yung, a strategist at Delta Asia Securities Ltd. in Hong Kong. A weaker currency would make Chinese assets less attractive to foreigners, he said, while any withdrawal by the government from the market would further “frighten” investors.

Net Outflows

The Shanghai Composite rebounded 0.7 percent at the close, while the CSI 300 Index gained 0.1 percent. The Hang Seng Index slid 0.7 percent.

Yuan positions at China’s central bank and financial institutions fell by the most on record in July, a sign capital outflows picked up and the central bank stepped up intervention to support the yuan. The Chinese currency was little changed Monday at 6.3945 per dollar as the central bank helped stabilize the exchange rate, after sliding 2.9 percent last week.

The yuan will probably move in both directions in the future following last week’s devaluation and the central bank could intervene to combat both appreciation and depreciation, according to Ma Jun, chief economist at China’s central bank.

Mainland-traded shares have diverged with their Hong Kong counterparts after unprecedented government intervention to stop a $4 trillion rout. While the Shanghai Composite climbed 13 percent from its July 8 through last week, the Hang Seng China Enterprises index has erased an advance of as much as 8.1 percent to trade at its lowest level since December 1.

Over the past 2 1/2 months, about $8.8 billion has flowed out of China and Hong Kong-focused global funds, CICC said in a note Monday, citing EPFR Global.

Tianjin Destruction

While China Securities Finance will remain in the stock market for years to come, it won’t normally step in unless there’s unusual volatility and systemic risks, the China Securities Regulatory Commission said in a statement on its website on Friday. The regulator said it will focus on letting the market self-adjust as volatility falls.

Insurers led declines in Hong Kong on Monday. The death toll from Wednesday’s blasts at a chemical warehouse in Tianjin climbed to 114, while 70 people are still missing, Xinhua News Agency reported. Tianjin is the world’s 10th-busiest port and has become a gateway to northern China for shipments of metal ore, coal, autos and crude oil.

Ping An, China’s second-biggest insurer, lost 1 percent in Hong Kong, closing at the lowest level since March 13. China Life Insurance Co. fell 1.6 percent, while China Pacific Insurance Group Co. declined 1.4 percent.

“There’s some concern that profitability of insurance companies will be impacted by the Tianjin accident,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co., who is keeping holdings unchanged.

Port Operations

Claims from the blast may be as much as 10 billion yuan ($1.6 billion), China Youth Daily reported on Aug. 15, citing Hao Yansu, an academic at the Central University of Finance and Economics.

Tianjin Port Development Holdings Ltd. sank 13 percent, its biggest plunge since March 2009. Tianjin Development Holdings Ltd. tumbled 3.2 percent.

“The market is worried that throughput in Tianjin port may not recover in the short term,” said Kenny Tang, chief executive officer of Jun Yang Securities Co. in Hong Kong.

Huabao International Holdings Ltd., a fragrance maker, retreated 17 percent in Hong Kong after reporting lower profit.

China Eastern Airlines Corp., the nation’s second-largest carrier, surged by the 10 percent daily limit in Shanghai after first-half net income jumped 300-fold. Air China Ltd. climbed 8.7 percent. China Southern Airlines Co. gained 9.7 percent.

Source: Bloomberg