China stocks swing amid looming stagflation risk after producer inflation accelerates to 26-year high

  • Producer prices jumped 10.7 per cent year on year in September, the fastest pace since November 1995, National Bureau of Statistics data showed
  • Shanghai Composite Index added 0.2 per cent in the morning session, while the broader CSI 300 Index fell 0.3 per cent

China’s stocks fluctuated between gains and losses as traders assessed the risk from stagflation, after a government report showed that producer prices rose at the fastest pace in almost 26 years.

The Shanghai Composite Index added 0.2 per cent to 3,567.14 at the break after changing directions six times in Thursday morning trading. The CSI 300 Index of the most valuable companies on the Shanghai and Shenzhen exchanges slipped 0.3 per cent. Raw-material producers gained while health care and consumer stocks dropped.

Hong Kong’s market is shut for a public holiday while trading was cancelled a day earlier because of Typhoon Kompasu.

Producer prices jumped 10.7 per cent from a year earlier in September, the fastest pace since November 1995, the National Bureau of Statistics said on Thursday morning. That exceeded the median estimate of 10.5 per cent in a Bloomberg poll of analysts and the 9.5 per cent gain in August. Consumer inflation largely remained subdued because of falling pork prices.

China’s September credit growth also trailed analysts’ projections, according to the data released by the central bank after the market close on Wednesday, signalling weakening economic activity.

The set of economic data has stoked concerns about looming stagflation, which is likely to be exacerbated by surging global crude oil and natural gas prices. Local traders are cautious about the outlook of equities, largely refraining from stepping up buying, as daily turnovers dipped below 1 trillion yuan (US$155.4 billion) every day this week.

The nation’s economic growth may have moderated to 5 per cent in the third quarter from 7.9 per cent growth for the preceding three-month period, according to Bloomberg data. The third-quarter growth numbers are due Monday.

Pictet Asset Management predicts that China’s central bank will lower the reserve requirement ratio later this year, its second cut this year, to stem a further slide in economic growth.

“We are waiting for a more material dovish shift in monetary policy to add to our tactical exposure,” said Luca Paolini, chief strategist at the Swiss asset management firm.

A gauge of raw-material stocks on the CSI 300 gained 1.4 per cent as the best performer among all the industry groups. Jiangxi Copper, Shandong Gold Mining and Zhejiang Huayou Cobalt surged at least 5 per cent, as traders rode on surging factory-gate inflation. On the flip side, a measure of pharmaceutical companies tumbled 2.2 per cent.

Kidswant Children Products, a toymaker, surged 288 per cent from its initial public offering price to 22.40 yuan on debut in Shenzhen.

Most markets in Asia rose, as the yield on longer-dated US Treasuries stayed at a low level, tempering expectations about an immediate withdrawal of monetary stimulus.

Author: Zhang Shidong, South China Morning Post

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