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By Bloomberg

Chinese stocks trading in Hong Kong rallied the most in a month after the government cut the yuan reference rate by a record amid signs the economic slowdown is deepening.

The Hang Seng China Enterprises Index in Hong Kong climbed for a third day, adding 1.5 percent to 11,461.84 at the noon break. PetroChina Co and Jiangxi Copper Co. surged more than 3 percent to lead gains for energy and material companies. China Southern Airlines Co. slid 17 percent to pace declines for carriers on concern a weaker yuan will boost the cost of servicing dollar-denominated debt.

China lowered the yuan’s daily reference rate by 1.9 percent amid a recent slew of data showing decelerating growth for the world’s second-biggest economy. The nation’s broadest measure of new credit missed economists’ forecasts last month, according to data released on Tuesday, while weekend reports showed exports dropped more than expected and producer prices fell to the lowest since 2009.

“The yuan’s weakness helps with exporters and improves the economic outlook as well,” said Castor Pang, head of research at Core-Pacific Yamaichi Hong Kong. “The currency will depreciate in short term, reflecting weakness in internal economic momentum.”

The Shanghai Composite Index fell 0.4 percent at the break, after jumping 4.9 percent on Monday. The CSI 300 Index slipped 0.5 percent, led by financial and drug companies. The Hang Seng Index in Hong Kong advanced 1 percent.

The Chinese currency dropped 1.7 percent to 6.3140 per dollar as of 11:40 a.m. in Shanghai, the biggest one-day loss since the government unified official and market exchange rates in 1994. It slid 2 percent in Hong Kong’s offshore trading.

Exports Boost

The move comes after the PBOC said earlier Tuesday that a strong yuan puts pressure on exports. China’s overseas shipments fell 8.3 percent from a year earlier in dollar terms in July, well below the estimate for a 1.5 percent decline in a Bloomberg survey. The yuan has appreciated 13 percent over the past three years against the dollar, the most among major currencies, according to data compiled by Bloomberg.

“The central bank has some intention to boost exports through the devaluation of the yuan as the recent exports data don’t look very good,” said Wu Kan, a Shanghai-based fund manager at JK Life Insurance Co., who is adding to shares. “The market seems to interpret the news as positive, believing the move will boost economic growth.”

In Hong Kong, Jiangxi Copper advanced 3.2 percent, while PetroChina rallied 3.2 percent.The Bloomberg Commodity Index of 22 raw materials, which includes crude, metals and grains, advanced by the most since February on Monday before resuming its drop. Airlines slumped, with Air China Ltd. dropping 13 percent.

Winners, Losers

“The winners will be exporters with pricing power,” said Wenjie Lu, a Shanghai-based strategist at UBS Group AG. “By sectors, airlines are losers from the currency’s weakness because of a lot of foreign debt, while energy companies with foreign subsidiaries and assets will be affected as currency depreciation hurts revenue.”

In mainland trading, Jiangsu Hengrui Medicine Co. slid 3.7 percent to lead declines for health-care shares. Suning Commerce Group Ltd. jumped 10 percent in Shenzhen after Alibaba Group Holding Ltd. said it will spend 28.3 billion yuan ($4.6 billion) for a 19.9 percent stake in the electronics retailer.

Aggregate financing slumped to 718.8 billion yuan in July, from 1.86 trillion originally reported for June, according to the PBOC. That missed the median estimate for 1 trillion yuan in a Bloomberg survey. Recent data showed a private gauge of manufacturing sank to a two-year low and profits at industrial companies declined by 0.3 percent in June.

The Shanghai gauge has rebounded 12 percent since the July low as authorities took unprecedented measures to shore up markets including banning stake disposals by major shareholders, suspending initial public offerings and compelling state-run institutions to purchase equities.

Margin traders increased holdings of shares purchased with borrowed money by the most in four months on Monday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising 1.8 percent to 861.2 billion yuan.