China: Stocks most overbought since bubble peak as rally reverses

[HONG KONG] Chinese stocks retreated from a three-month high, with materials and energy companies leading the drop, amid signs that recent gains by the market were excessive.

The Shanghai Composite Index fell 0.2 per cent, halting a three-day advance, after trade data signaled sluggish consumer demand in the world's second-largest economy. Jiangxi Copper paced metal shares lower after rising to this year's highest level.

The mainland benchmark gauge's 14-day relative-strength index surpassed 70 on Wednesday for the first time since just before last summer's US$5 trillion rout.

Official data released Wednesday showed a bigger-than- expected decline in imports, which suggests that domestic demand is still weak, according to Australia & New Zealand Banking Group.

China is set to report second-quarter gross domestic product data Friday, with economists predicting an expansion of 6.6 per cent, which would be the slowest since 2009.

"As it edges up, the market is running into greater and greater resistance," said Shen Zhengyang, a strategist at Northeast Securities in Shanghai. "China is unlikely to further boost money supply even if global central banks start a new round of easing, while the Chinese economy is not improving in the near term."

The Shanghai Composite, which closed at 3,054.02, has risen 5.6 per cent since June 23, when the UK voted to leave the European Union, placing the gauge among the top 5 gainers among 94 global benchmarks tracked by Bloomberg. The Hang Seng China Enterprises Index and the Hang Seng Index climbed 1.1 per cent in Hong Kong.

Jiangxi Copper and and China Molybdenum Co. fell at least 2.3 per cent on the mainland. Sinopec Oilfield Service Corp. sank 2.8 per cent after saying Tuesday that expects a wider net loss for the first half. Shaanxi Coal Industry dropped 2.3 per cent.

A lack of capital inflows is spurring investors to move between the A-share market's sectors, said Shen of Northeast Securities. "Money is rotating out of energy and material stocks, which have had decent rallies, into new-economy growth companies," he said.

BLOOMBERG