(Bloomberg) -- This year’s rally in Chinese shares is threatening to unravel almost as quickly as it began.
The Shanghai Composite Index fell as much as 1.2 percent Monday, dropping below its 50-day moving average, before paring the decline. That follows its 5.6 percent slump last week, the worst performance versus global equities since early 2016. The ChiNext Index fell as much as 2.5 percent.
China was the best place in the world for equity investors in the first quarter, with all its major benchmarks entering a bull market and volume surging. The rally has lost momentum amid a lacklustre 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 nearly 40 percent from its March peak after surging more than 250 percent this year. A gauge of brokers is down almost 5 percent in April, paring its gain this year to 48 percent.
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 0.7 percent, was about 29 percent lower than the 30-day average for this time of day.
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
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