Bloomberg News

China’s Stocks Slump Most in Two Months Amid Earnings Concern

November 16, 2011

Nov. 16 (Bloomberg) -- China’s stocks fell by the most in almost two months as investors speculated the nation’s tight monetary policies are hurting earnings growth and a slide in the euro heightened concerns about the European debt crisis.

China Vanke Co. and Poly Real Estate Group Co. the nation’s biggest developers, dropped at least 3.4 percent after Shanghai Securities News said Vanke may cut prices for its Shanghai projects and the China Securities Journal reported real-estate companies are facing large loan repayments. Inner Mongolia Yili Industrial Group Co. slid 4.1 percent after the company cut its fundraising target in a share sale.

“There are still worries about economic growth next year and a possible decline in company earnings,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which manages the equivalent of $2.2 billion. “There’s not much optimism and we are expecting exports to fall too. We are now only hoping for policy easing to take place.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slumped for the first time in four days, losing 62.8 points, or 2.5 percent, to 2,466.96 at the close of trading. The percentage drop was the biggest since Sept. 22. The CSI 300 Index slid 2.7 percent to 2,670.12.

The Shanghai Composite has risen 6.5 percent from this year’s low on Oct. 21 as loan growth jumped, inflation slowed and the government announced measures to help cash-strapped small companies. The gauge is still down 12 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation.

The stock index is valued at 11.6 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

Export Outlook

The outlook for China’s exports over the next few months and in the first quarter of next year is “not optimistic,” Shen Danyang, spokesman for the Ministry of Commerce, said at a regular briefing in Beijing today. He cited “uncertainties” in the external environment, cooling demand from Western economies and rising costs for Chinese exporters.

China’s export growth of 15.9 percent last month was less than the 16.1 percent median estimate in a Bloomberg economist survey.

Foreign direct investment rose 8.8 percent in October from a year earlier to $8.33 billion, the Ministry of Commerce said in a statement today in Beijing. The gain was 7.9 percent in September. Inflows in the first 10 months of the year increased 15.9 percent, the ministry said.

Developers Slump

A gauge of property stocks in the Shanghai Composite slid 2.8 percent, the most among five industry indexes. China Vanke slumped 3.4 percent to 7.29 yuan after Shanghai Securities News reported the company may cut prices for all of its home projects in Shanghai by more than 20 percent at the end of this week. The report cited an unidentified Hanyu Property official. Poly Real Estate dropped 4.8 percent to 9.40 yuan.

Chinese developers may have borrowed more than 1 trillion yuan ($158 billion) in loans since the second half of last year at high interest rates, China Securities Journal reported, citing unidentified people.

BNP Paribas cut its earnings per-share forecasts for Chinese property developers by up to 26 percent for 2012, and up to 33 percent for 2013, to reflect expectations of a 10 percent drop in home prices from now until the first half of 2012, analyst Frank Chen wrote in a report.

Airline Downgrade

China Life Insurance Co., the nation’s biggest insurer, dropped 3.8 percent to 17.68 yuan after the company reported premium income was about 282.1 billion yuan in the first 10 months of the year. Premium income grew 1.4 percent from the previous year and was lower than expectations, according to BOCOM International Holdings Co.

Stocks also fell today amid concern initial public offerings may lure funds away from existing equities. The China Securities Regulatory Commission approved New China Life Co.’s Shanghai IPO, 21st Century Business Herald reported, citing an unidentified person.

Yili, the nation’s biggest dairy producer, sank 4.1 percent, the most since Sept. 9, to 22.11 yuan after it cut the size of its private share sale by 29 percent. The company plans to raise as much as 5 billion yuan from the sale, according to an exchange filing, down from as much as 7 billion yuan it announced in May.

Concerns over the debt crisis in Europe, China’s biggest export market, also weighed on equities. The euro slid toward a one-month low against the yen after the extra yield investors demand to hold bonds from France, Belgium, Spain and Austria instead of German bunds climbed to euro-era records. Europe accounts for about 20 percent of China’s overseas shipments.

Air China Ltd, the largest international carrier, dropped 2.4 percent to 7.97 yuan. China Southern Airlines Co., the biggest domestic airline, lost 2.8 percent to 6.18 yuan.

China’s airline industry was cut to “neutral” from “positive” at Daiwa Capital Markets, which said passenger load factors and yields are likely to decline in 2012.

-- Editors: Darren Boey, Ravil Shirodkar

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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