Inflation Numbers Hit Stocks in China

Higher-than-expected inflation data from China spurred a sharp late-day selloff in Hong Kong, while stocks in Shanghai tumbled to a 12-month low.

The Hang Seng fell 23 points, or 0.1%, to 23,878.35, after gaining as much as 119 points earlier. China's Shanghai Composite Index lost 57 points, or 1.7%, to 3291.60.

"Hong Kong is not really holding up," says Andrew To, head of sales and research for Tai Fook Securities in Hong Kong. "Over the next few days there will be further offloading and profit-taking until the Hang Seng goes to 23,000 points or below. Then that could stimulate some long-term funds to rebuild their portfolios here."

China's central government announced that consumer price inflation for March was 8.3%, ahead of the expected 8.2%. Still, the number was half a percentage point lower than inflation for February. Gross domestic product for the first quarter was higher than expected, at 10.6% vs. 10.4% estimated by analysts, although it fell from 11.2% in the previous quarter.

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Despite the warm inflation number, traders and analysts in Hong Kong didn't trust the government's numbers, speculating that the real figure is in fact much higher.

An easing of commodity prices after an overnight rally in crude delivered another blow to Chinese shares. Crude oil slipped 10 cents to $113.69 a barrel, while gold fell by $1.09, to $926.82 an ounce in Singapore trading. Conversely, because of the overnight rally in crude, airline stocks were also heavily sold.

PetroChina(PTR Quote) fell 0.4% to 16.99 yuan in Shanghai, and it lost 1% to HK$9.77 in Hong Kong. Aluminum Corp. of China(ACH Quote) dove 4.5% to 20.85 yuan in Shanghai and slipped 0.7% to HK$12 in Hong Kong. Sinopec Shanghai Petrochemical(SHI Quote) dipped 1.4% to 8.29 yuan.

Air China(AIRYY Quote) plunged 7.2% to 14.25 yuan, and China Eastern Airlines(CEA Quote) slid 5.6% to 10.82 yuan. Cathay Pacific(CPCAY Quote) declined 1.7% to 15.44 yuan.

Traders said they were heavily shorting shares in Alibaba.com(ALBCF Quote), despite an increase in Chinese mainland retail sales. Alibaba.com fell 3.8% to HK$13.06. That could make for an uncertain performance in shares of Baidu.com(BIDU Quote), which track both Chinese domestic consumption and the Chinese technology sector.

Telcos mainly held up in Hong Kong after an announcement by the Ministry of Information in China that operators will be able to set their own prices for fixed-line and data services. China Mobile (CHL Quote) gained 0.2% to HK$127.40, and China Telecom (CHA Quote) rose 1.2% to HK$4.90. China Unicom (CHU Quote) jumped 1.7% to HK$16.40, and China Netcom (CN Quote) gained 3% to HK$22.40.