China stocks fall as economy slips into deflation

HONG KONG, Aug 9  – China A-shares extended losses on Wednesday as consumer prices fell into deflation, with markets looking forward to more stimulus policies to revive spending. Hong Kong stocks closed higher.

** China’s blue-chip CSI 300 Index dipped 0.31%, and the Shanghai Composite Index fell 0.49%.

** Hong Kong’s Hang Seng Index edged up 0.32% and the Hang Seng China Enterprises Index rose 0.39%.

** China’s consumer prices fell into deflation in July, dropping 0.3% year-on-year, its first fall in over two years.

** Factory gate prices fell for the tenth consecutive month.

** Chinese policymakers will soon organize a meeting with four biggest cities’ top leaders to discuss property policy optimization, Chinese media Economic Observer reported on Wednesday.

** “Both CPI and PPI are in deflation territory. The economic momentum continues to weaken due to lacklustre domestic demand,” said Zhiwei Zhang, president of Pinpoint Asset Management.

** The CPI deflation may put more pressure on the government to consider additional fiscal stimulus, he said.

** Goldman Sachs analysts said in a note they expect annual PPI inflation to bottom out this quarter and CPI inflation to experience a “U-shaped” recovery in the coming months.

** Linus Yip, chief strategist at First Shanghai Securities, said the falling CPI is not all bad news.

** Given the US rate hike cycle is close to an end, today’s CPI number actually makes some investors look forward to a larger room for policy easing, he said.

** Meanwhile, major state-owned banks were seen selling US dollars to buy the yuan in the onshore spot foreign exchange market, sources told Reuters, in a bid to slow yuan declines.

** Tech giants listed in Hong Kong narrowed losses in the noon session and closed flat.

** In mainland A-shares, healthcare stocks climbed 1.4%, while artificial intelligence-related firms down 2%.

** Top homebuilder Country Garden lost another 1.8% after a 14% slump on Tuesday as the company missed two dollar bond coupon payments.

(Reporting by Summer Zhen; Editing by Savio D’Souza and Varun H K)