Asia: Chinese stocks post largest fall in two weeks

Chinese stocks fell on Tuesday, sending the benchmark index down by the most in two weeks, amid concern recent gains were excessive and a slowing economy will curb earnings growth.

The Shanghai Composite Index fell from a four-year high, sliding 3% to 3,032.61 at the close. A rally of 22% over the past month, fueled by speculation of an impending easing of policy, drove valuations to three-year highs as technical indicators signalled overbought conditions. The Hang Seng Index fell 0.3%.

“Investors are taking profit after the surge recently,” said Zhou Lin, an analyst at Huatai Securities Co. “This is why you see banks and materials such as aluminium falling now. In the long run, while there’s the risk of a weak economy, we are expecting policy loosening too. I am expecting reserve-ratio requirement cuts early in January.”

Iron ore prices sank to their lowest since 2009, as supply continues to exceed demand and China, the biggest user, contends with its weakest expansion in nearly 25 years. Gripped by a property downturn and excess capacity, China is set to grow 7.4% this year, the slowest full-year expansion since 1990.

“The commodity share rally was always expected to be short-lived,” said Ryan Huang, a market strategist at IG Ltd. in Singapore. “It was not sustainable with fundamentals largely unchanged. Investors are taking the rally as an opportunity to cash out and sell.”

The yen dropped as much as 0.1% on Tuesday to 120.18 per dollar, its weakest level since 9 December. The currency capped a fourth day of losses last session, its longest slump in a month.

Industrial & Commercial Bank of China Ltd. and PetroChina Co., the nation’s biggest companies, dropped by more than 4% each.

Aluminum Corp. of China Ltd. plunged 7.2% after rallying over 25% in three days.

Huaneng Power International Inc. led declines for utilities, slumping 6.6% after valuations hit their highest levels in 19 months.

AVIC International Holding Ltd. jumped 21% in Hong Kong after the city-state’s richest man, Li Ka-shing, bought a stake.

Japan’s markets were shut for a holiday.