China Stocks Decline From Four-Week High as Factory Data Misses

(Bloomberg) -- Stocks in China fell from a four-week high as June kicked off with disappointing manufacturing data.

The Shanghai Composite Index declined 0.5 percent to 3,102.62 at the close, with materials and telecommunications companies leading losses. The ChiNext gauge of mostly technology shares fell 2 percent to the lowest since February 2015.

In June, mainland investors will have to reckon with the prospect of seasonally tighter liquidity and MSCI Inc.'s decision on whether to include A shares in its indexes. A private gauge of China's manufacturing fell back into contractionary territory in May, adding to recent evidence that the economy's strong start to 2017 is leveling off.

"We may have seen the peak of economic growth in the first quarter," said Daniel So, a strategist at CMB International Securities Ltd. in Hong Kong. "June could be an interesting month -- there may be more concerns regarding tighter liquidity, especially with Shibor going up quite sharply. I'd also expect to see some profit taking on a few of the large-cap names because the chances of MSCI inclusion, although better than previous years, are really not that high."

China's benchmark seven-day repurchase rate has climbed every June over the past 10 years as financial institutions hoard cash toward the end of the second quarter and fight for deposits. In 2013, the combination of this and the central bank's reluctance to inject liquidity caused a cash crunch that rippled through global markets. The onshore yuan strengthened for a fourth day Thursday after a stronger central bank fixing and amid speculation Chinese policy makers are trying to discourage bets against the currency.

"The recent rally in the yuan will be a good thing for stocks sentiment because it points to currency stabilization," said CMB International's So.

Index provider MSCI is consulting clients for a fourth time on the merits of including China's $6.7 trillion equity market in its benchmarks this year. Only 169 companies will be considered for inclusion, down from 448 previously, and all will be large-cap shares already accessible to foreign investors via exchange links with Hong Kong. MSCI, which will announce its decision on June 20, has said concerns persist over market data and trading suspensions.

The Shanghai gauge, which is dominated by large state-owned banks and oil companies, has recovered almost all its losses for the year amid speculation that government funds have been active in the market. The recovery has pulled it further away from the Shenzhen Composite Index, the benchmark in China's technology hub, which has slumped 9.9 percent in 2017.

In Hong Kong, the Hang Seng Index gained 0.6 percent after capping a fifth month of gains. On Wednesday, the value of shares traded in Hong Kong was the highest in 21 months as MSCI rebalanced its indexes, while offshore yuan futures had their second busiest day on the city's bourse ever.

• China Evergrande Group advanced 2.4% in Hong Kong, paring gains of as much as 8.6%, after raising the equivalent of about $5.8 billion from selling a stake in a residential property development unit.
• Cogobuy Group tumbled again, falling 27% to post a third consecutive record decline. The shares plummeted by 23% Wednesday after resuming trading in the wake of an anonymous research report. Calls Thursday to a Cogobuy spokesperson were not answered.
• Hebei Changshan Biochemical Pharmaceutical Co. surged by the daily limit after announcing it would build a dialysis center, drug research institute and hospital for tumor treatment in China's new Xiongan economic zone. The company is also eyeing acquisitions of fellow drugmakers in the area, it said.
• Prada SpA fell 4.3% for the biggest drop in eight months, after U.S.-listed peer Michael Kors Holdings Ltd. said sales sank last quarter.

--With assistance from Sarah McDonald Robin Ganguly Philip Glamann and Gregory Turk

To contact the reporter on this story: Sofia Horta e Costa in Hong Kong at shortaecosta@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Ryan Lovdahl