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Chinese stocks in Hong Kong drop for first time in five days

[HONG KONG] Chinese stocks trading in Hong Kong fell for the first time in five days, led by financial and commodity companies.

Jiangxi Copper Co slid 3 per cent, while Citic Securities Co declined 2.5 per cent. Internet security software companies Beijing VRV Software Corp and NSFocus Information Technology Co jumped more than 5 per cent after the Xinhua News Agency said the nation plans to spend more on national security. Shenwan Hongyuan Group Co surged on the first day trading after the merger of Shenyin & Wanguo Securities Co and Hongyuan Securities Co.

Hong Kong's Hang Seng China Enterprises Index dropped 0.5 per cent at 10:03 a.m. local time. The Shanghai Composite Index fell 0.2 per cent. The CSI 300 Index added 0.3 per cent. The Hang Seng Index slipped 0.2 per cent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.2 per cent in New York on Jan. 23.

The Shanghai gauge has gained 64 per cent over the past year, making it the best performer among 93 global indexes tracked by Bloomberg. The index is valued at 12.8 times 12-month projected earnings, compared with a multiple of 8.2 for the H- shares gauge, according to data compiled by Bloomberg.

Just below the surface of China's world-beating equity rally, signs of trouble are emerging.

While the Shanghai Composite touched a five-year high on Friday after a 63 per cent gain during the past year, other gauges of investor enthusiasm are tumbling. Turnover sank 47 per cent from its peak in December, while new equity account openings fell 50 per cent and purchases using borrowed money dropped 38 per cent. The number of stocks reaching new 52-week highs has declined 75 per cent in the past six weeks.

"We have seen fewer new account openings, narrower trading turnover and heightened market volatility recently in the A- share market," Yuliang Chang, the chief China and Hong Kong strategist at Deutsche Bank, Germany's largest lender, said in e-mailed comments on Jan. 23. "This does not bode well for this liquidity-driven rally."