China’s Stocks Poised for Weekly Drop as Financial Shares Drop

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Chinese stocks were poised for the second weekly drop in three weeks as consumer-staple and financial shares declined, while as drugmakers gained.

Kweichow Moutai Co. (600519) slumped 2.9 percent, leading a gauge of consumer-staple companies to a one-month low. Financial shares were the biggest drag on the CSI 300 Index after valuations climbed to a 10-month high. Goertek Inc., an Apple Inc. supplier, dropped to a five-week low after the U.S. company’s shares slumped on earnings. Yunnan Baiyao Group Co. (000538), which sells traditional Chinese medicine, led health-care stocks higher.

The Shanghai Composite Index (SHCOMP) sank 0.1 percent to 2,299.37 at 1:27 p.m. local time, with five stocks gaining for every four that fell. The measure has lost 0.9 percent this week. The gauge has risen 17 percent since approaching a four-year low on Dec. 3 amid signs of an economic recovery and as the government pledged to encourage urban development. It’s valued at 12.7 times reported profit, approaching the highest level since May, data compiled by Bloomberg show.

“Medium-term prospects are still a blur,” Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai, said by phone today. “Any reform initiatives are not realized yet. Until we see concrete steps for reforms, it’s hard for the index to break 2,350.”

The CSI 300 Index (SHSZ300) lost 0.1 percent to 2,581.27. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong retreated 1.1 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, fell 0.7 percent in New York.

Urbanization Drive

Shanghai Composite trading volumes were 22 percent lower than the 30-day average today. Its 30-day volatility was at 20.5, compared with the 11-month high of 21.6 on Jan. 17. The gauge fell 0.8 percent yesterday, the most since Jan. 17, as North Korea threatened a nuclear test targeted at the U.S. The White House said the threat was “needlessly provocative” and will lead to further isolation and sanctions.

Lion Fund Management Co., the $7.5 billion money manager that led Chinese investors into gold exchange-traded products, said the best returns in 2013 will come from stocks that tap the migration of farmers to the city.

Demand for building materials, home appliances and property will benefit as Li Keqiang, set to become China’s new premier in March, promotes urbanization to drive economic growth that’s showing signs of accelerating after a two-year slowdown, Lion’s Chief Executive Officer, Ao Chengwen, said in an interview with Bloomberg News on Jan. 23.

U.S. Trading

The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., was unchanged at $41.53 in New York, after declining 0.5 percent Jan. 23. The Standard & Poor’s 500 Index was also little changed at a five-year high of 1,494.82, as the worst slump for Apple Inc. in four years pulled technology shares lower and overshadowed better-than-forecast company earnings.

Shanghai-based Focus Media Holding Ltd., which disclosed an investigation into possible violations of securities laws Jan. 18, sank the most since September. China Unicom (Hong Kong) Ltd. traded at the widest discount to Hong Kong in three months.

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