(Bloomberg) -- Chinese equities pared losses in afternoon trading as optimism over possible easing of rules in the property sector and the growth potential of some pharmaceutical firms offset earlier concerns of rising inflation.
The benchmark CSI 300 Index closed 0.5% lower, narrowing an earlier loss of 1.9%. Consumer staples was the worst performing subgauge, while Aier Eye Hospital Group Co. and liquor giant Kweichow Moutai Co. were the top two point drags.
Shares had fallen earlier in the day after official figures showed that China’s factory-gate prices grew at the fastest pace in 26 years last month, while consumer inflation also accelerated.
Given the higher-than-expected numbers, it looks unlikely that China’s central bank will lower lenders’ reserve requirement ratio in the near term, which weighed on stocks, according to Steven Leung, executive director at UOB Kay Hian in Hong Kong.
High China Inflation May Hurt Hopes for Further Easing: Analysts
Sentiment improved in the afternoon, led by pharmaceutical shares. Ongoing negotiations related to coverage by a national insurance fund has raised expectations that sales will be boosted once the firms are included into the program, Yuekai Securities Co. analyst Chen Mengjie wrote in a Wednesday note. A gauge of health-care stocks was the best performer in the CSI 300, advancing 2.3%.
Developers also staged a late-day rally, with a Bloomberg index of property firms jumping 6.2% after state media said authorities are likely to loosen controls for companies to issue local-currency notes in hopes of preventing further financing deterioration.
The news seems to be suggesting that regulators may ease curbs on developers’ access to domestic financing, which would be critical to solving debt issues, according to Raymond Cheng, head of China and Hong Kong research at CGS-CIMB Securities.
Some Chinese state-owned enterprises have recently asked regulators to consider adjusting “three red lines” rules on M&As in the property sector, local media reported, citing an unidentified person. Such a relaxation would be an “important” short term measure to help reduce the sector’s debt risks, said Cheng.
Still, foreign investors sold mainland stocks for a fourth consecutive day, dumping 11.8 billion yuan ($1.8 billion) via trading links with Hong Kong. That is the biggest outflow since late July.
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