China's October food prices may have fallen 0.4 percent from September, the first drop since June, the Shanghai Securities News said today, citing Guotai Junan Securities Co.

A gauge of property stocks in the Shanghai Composite dropped 1.1 percent, the most among the five industry groups. Poly Real Estate slipped 2 percent to 9.85 yuan. China's second- largest developer by market value said October contracted sales fell 39 percent from a year earlier. Gemdale Corp. lost 1 percent to 4.78 yuan after saying its October sales slumped 38 percent from a year ago.

Authorities have prepared several measures to prevent home prices from rebounding, the Shanghai Securities News reported today, citing unidentified sources. Possible curbs include a property tax, according to the report.

Price Declines
China's home prices will fall as much as 30 percent in the next year, driven by the government's housing curbs, according to Barclays Capital Research. The correction in the property market will have an impact on the country's economic growth, though is unlikely to lead to a financial meltdown, Hong Kong- based economists led by Huang Yiping said in the report today, citing the low leverage ratio of Chinese households.

Eoin Treacy's view The Shanghai Composite Index retested the 2010 low three weeks ago. Since October it has posted two upside key day reversals and a weekly key reversal. It followed through to the upside last week and is now somewhat overbought in the very short term. This rally is now as large as that posted in June. The Index will have to find support above the early November lows, on the next pullback, if the upside is to continue to be given the benefit of the doubt.

The property market remains the focus of government monetary tightening and is unlikely to be the leading sector in a recovery scenario. I clicked through the various Chinese indices on the mainland and in Hong Kong in an effort to ascertain which are leading.

The CSI Consumer Staples Index, which is dominated by brewers, is a clear outperformer. It has been consolidating, with a mild upward bias above 5000 since late last year and a sustained move below that level would be required to question medium-term scope for additional upside.

The Shanghai Industrial Index is also noteworthy. It does not exhibit the same downward bias as the wider market and has been largely rangebound since late 2009. It is currently rebounding from above the 2010 low.

In Hong Kong, the Hang Seng Utilities Index is among the best performers. It is rebounding from the February lows and a sustained move below 5150 would be required to check medium-term scope for additional upside.