Chinese stocks came well off early highs and the main stock index closed almost flat on Tuesday after the government said consumer price inflation jumped to an 11-year high in November. The Shanghai Composite Index hit an intra-day high of 5,209.705 points in the first half-hour of trade, but pulled back after the inflation data to close only 0.25 percent higher at 5,175.076.
Gaining Shanghai A shares outnumbered losers by 582 to 249. Turnover in Shanghai A shares remained fairly active at 105.8 billion yuan ($14.3 billion) against Monday's one-month high of 106.7 billion yuan.
The November inflation figure of 6.9 percent was not a surprise, as it had been rumoured on Monday. While China is tightening monetary policy to fight inflation, one aspect of that tightening - faster appreciation of the yuan against the dollar - is actually positive for stocks overall because it encourages investors to keep their money in domestic markets.
"Investors have been expecting CPI will stay high for months, and they already know the government is keen to fight inflation. So the market was not affected much - it's just a slowdown before it resumes rising gradually," said Wu Lei, analyst at CITIC-Kington Securities.
Nevertheless, the November inflation data raised chances of an interest rate hike in the next couple of months, traders said. Banks and real estate shares were particularly weak for a second straight day on Tuesday because authorities are stepping up efforts to cut loan growth.
Industrial & Commercial Bank of China, the biggest bank, slid 1.32 percent to 8.21 yuan. Major property developer Vanke slipped 2.42 percent to 32.30 yuan. "Sentiment in the market has revived a little since last month, but I am still cautious and only consider this a technical rebound," said Li Shiming, analyst at Galaxy Securities.
The index tumbled more than 20 percent from October's all-time high to an intra-day low of 4,778.727 points on November 28, and has been trending higher since then. Key to the rebound has been PetroChina, the most heavily weighted share, which tumbled more than 30 percent after its listing in early November but began recovering early this month. It climbed 1.62 percent to a one-week high of 31.93 yuan on Tuesday.
Another positive signal for the market on Tuesday was the rise of a prominent consumer-related stock, traditional liquor maker Kweichow Moutai, to a new all-time high. Moutai broke above its previous record intra-day high of 199.00 yuan, set in October, after a shareholders' meeting approved expansion plans. It closed up 4.50 percent at 201.72 yuan in the heaviest trade since early October.
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