Bloomberg News

China’s Stocks Drop, Capping Weekly Decline; Energy Shares Fall

October 21, 2011

Oct. 21 (Bloomberg) -- China’s stocks fell, capping the benchmark index’s steepest weekly drop in five months, on speculation slowing economic growth and the nation’s tighter monetary policies are hurting earnings.

PetroChina Co. slid to a one-month low as the nation’s largest oil producer said it may have a 2011 refining loss of over 50 billion yuan ($7.8 billion). Yanzhou Coal Mining Co. led declines for coal producers. China Minsheng Banking Corp. and Huaxia Bank Co. gained at least 1.9 percent as the finance ministry said cities such as Shanghai will be able to sell debt themselves instead of going through the central government.

“China’s economic slowdown will hurt companies’ earnings in the fourth quarter and next year,” said Mei Luwu, a fund manager at Lion Fund Management Co. in Shenzhen. “The market will fluctuate at the current low levels before bottoming out.”

The Shanghai Composite Index slumped 14.1 points, or 0.6 percent, to 2,317.28 at the close, extending this week’s slump to 4.7 percent, the most since the week ended May 27. The CSI 300 Index retreated 0.5 percent to 2,507.88.

Gauges of energy and material companies in the CSI 300 slid 1.5 percent and 2.3 percent today, extending losses this week to 7.6 percent and 10 percent respectively.

Stocks fell this week after some reports showed the Chinese economy is decelerating. The nation’s gross domestic product grew at 9.1 percent in the third quarter the slowest pace in two years, while foreign direct investment rose 7.9 percent in September at the slowest pace in three months.

PetroChina slid 0.9 percent to 9.65 yuan as the shares resumed trading after being suspended yesterday. The company’s annual resource tax payments may rise to 29 billion yuan, Mao Zefeng, a company spokesman said, confirming a Xinhua News Agency report.

Energy Stocks

PetroChina’s refining segment swung to a loss of 23.4 billion yuan in the first six months from a profit a year earlier, according to an Aug. 25 statement. The government, which controls fuel prices to curb inflation, raised tariffs by about 10 percent in the first half, while crude in New York averaged 26 percent higher from a year earlier.

Yanzhou Coal declined 1.9 percent to 25.51 yuan. Shanxi Lu’an Environmental Energy Development Co., a coal miner, slipped 0.9 percent today, capping a 17 percent retreat this week. Jiangxi Copper Co., China’s biggest producer of the metal, slid 1 percent to 24.95 yuan today.

Policy Outlook

The Shanghai index has plunged 17 percent this year, driving down estimated price earnings to a record low of 10.8 times yesterday, according to data compiled by Bloomberg. China has raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of their deposits to curb inflation that’s near a three-year high.

China won’t cut interest rates until inflation falls below 5 percent, Yu Yongding, a researcher with the Chinese Academy of Social Sciences and former central bank adviser, said today.

Yu said he didn’t expect any tightening or loosening of monetary policy as China stabilizes its monetary stance.

Consumer prices in the world’s second-biggest economy increased 6.1 percent in September from a year earlier, the National Bureau of Statistics said last week. The government’s full-year inflation target is 4 percent.

Lenders Gain

Huaxia Bank, partly owned by Deutsche Bank AG, led gains for lenders, adding 2 percent to 11.09 yuan. China Minsheng climbed 1.9 percent to 5.84 yuan.

The cities of Shanghai and Shenzhen, and the Zhejiang and Guangdong provinces will be able to sell debt themselves instead of going through the central government, according to a Finance Ministry statement yesterday.

“This sends a strong signal that the central government is determined to find a solution to resolve local debt problems,” said Qu Hongbin, chief economist for Greater China at HSBC Holdings Plc in Hong Kong. “It also opens a door for widening long-term financing channels for local governments.”

--Irene Shen. Editors: Allen Wan, Richard Frost

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net


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