Chinese Stocks Erase Losses Triggered by Moody's Cut and MSCI

(Bloomberg) -- Chinese shares rose in the final minutes of trading, erasing losses spurred by Moody’s Investors Service cutting China’s debt rating and negative comments from MSCI Inc. on the nation’s stock market.

The Shanghai Composite Index gained 0.1 percent to 3,064.08 at the close, reversing an earlier decline of as much as 1.3 percent. Consumer staples and health-care shares were among the biggest losers. The ChiNext gauge advanced 1 percent, erasing a loss of as much as 1.6 percent. Hong Kong’s Hang Seng Index gained 0.1 percent.

Moody’s reduced China’s rating to A1 from Aa3 and changed the outlook to stable from negative, citing the likelihood of a “material rise” in economy-wide debt and the burden that will place on the state’s finances. China’s Ministry of Finance said in a statement that the ratings company underestimated the capability of the government to deepen reform and boost demand. As for MSCI, concerns persist over market data and the trading suspensions of stocks, Chief Executive Officer Henry Fernandez said in an interview on Bloomberg TV. The index compiler will announce its decision on Chinese shares on June 20.

"It seems that regulators do not want the Shanghai benchmark to fall below 3,000, so when the index is close to that level, they will start buying for stability," said Castor Pang, strategist at Core-Pacific Yamaichi HK in Hong Kong.

• Cathay Pacific Airways Ltd. was the Hang Seng Index’s biggest gainer, rising 6.1% for its biggest jump since 2011. The stock was raised to neutral Tuesday at Goldman Sachs Group Inc.
• China Evergrande Group soared 17% to a record high. Morgan Stanley rated the stock a new overweight in a note Tuesday by analyst John Lam. The Chinese property developer’s net debt-to-equity ratio will drop to 237% by the end of this year, from 432% at end-2016 when treating perpetual securities as debt, as the introduction of strategic investors spurs a redemption of those securities, the note said.
• China Shenhua Energy Co. climbed 1.6% in Hong Kong to close at a nearly two-year high and cap a nine-day gaining streak, the longest since the stock’s 2005 trading debut. Nomura Holdings Inc. initiated coverage Tuesday with a buy rating, citing the H-shares’ attractive discount to their mainland-traded counterparts.

--With assistance from Kana Nishizawa and Philip Glamann

To contact Bloomberg News staff for this story: Jeanny Yu in Hong Kong at jyu107@bloomberg.net.

To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net, Ryan Lovdahl, Robin Ganguly

With assistance from Jeanny Yu