(Bloomberg) --
This year's rally in Chinese shares is threatening to unravel almost as quickly as it began.
The Shanghai Composite Index fell 0.8 percent and ended the session below its 50-day moving average. That follows its 5.6 percent slump last week, the worst performance versus global equities since early 2016. The ChiNext Index dropped 2.6 percent.
China was the best place in the world for equity investors in the first quarter, with its major benchmarks entering a bull market and volume surging. The rally has lost momentum amid a lackluster earnings season, while better-than-expected economic data prompted investors to scale back their expectations for additional stimulus. Data on manufacturing growth for April is due tomorrow.
“The market needs to drop more to fully price in the expectations that China might tighten its monetary policy,” said Zhang Gang, a Shanghai-based strategist with Central China Securities Co. “Poor corporate earnings hurt confidence and profit taking in stocks that had reaped strong gains added to the selling.”
Traders have been taking profit from some of the year's biggest winners, including brokers, 5G-related stocks and firms on the tech-heavy ChiNext Index. Eastern Communications Co., a maker of mobile communication products, has fallen 40 percent from its March peak after surging more than 250 percent this year.
Mainland markets will be shut from Wednesday for a three-day break. While northbound trading remains open through Tuesday, investors in China are unable to trade Hong Kong stocks through the exchange links until May 6. Volume on the Hang Seng Index, which rose 1 percent, was 25 percent lower than the three-month full-day average.
Foreign investors bought 4.5 billion yuan ($673 million) of China stocks via the trading links with Hong Kong, the most this month.
Brokerages retreated as investors worried trading volumes in the country's stock market may slide. Huatai Securities Co., Citic Securities Co. and Guotai Junan Securities Co. all fell more than 2 percent.
Other stories of note on Monday:
- Macau Casinos Climb in H.K. on Optimism Over Holiday, Revenue
- Contrarian Bears Who Got China Bonds Right Say Worst Is Over
- Guotai Junan Sees Investors Returning to China Bonds From Stocks
- U.S.-China Talks to Resume With Significant Issues Unresolved
- China's Vicious Banker Fee War Hits New Low With 0.0001% Bid
- China Conglomerate's Debt Woes Worsen After Bond Default
- ‘Rare' Wave of Hiring Hits Hong Kong as Virtual Banks Beef Up
To contact Bloomberg News staff for this story: Amanda Wang in Shanghai at twang234@bloomberg.net
To contact the editors responsible for this story: Sofia Horta e Costa at shortaecosta@bloomberg.net, David Watkins, Philip Glamann
©2019 Bloomberg L.P.
With assistance from Bloomberg
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