Bloomberg News

China’s Stocks Drop for Second Day on Earnings Growth Concern

December 20, 2011

Dec. 20 (Bloomberg) -- China’s stocks fell for a second day as concern earnings growth will slump outweighed speculation the government will ease monetary policies to boost economic growth.

Aluminum Corp. of China Ltd. retreated 0.6 percent after Shenyin & Wanguo Securities Co. cut its profit forecast for China’s biggest producer of the metal. Shippers China Cosco Holdings Co. and China Shipping Container Lines Co. dropped at least 1 percent on concern Europe’s debt crisis will curb demand for China’s exports. China Vanke Co. and Poly Real Estate Group Co. rose as the China Securities Journal said the central bank may cut lenders’ reserve requirement ratios in the near term.

“Corporate earnings projections will face massive downward revisions this quarter and the first half because of domestic tightening and weak exports,” said Wei Wei, an analyst at West China Securities Co. “Investors are anticipating a policy change amid the backdrop of an economic slowdown.”

The Shanghai Composite Index dropped 2.31 points, or 0.1 percent, to 2,215.93 at the close. Six stocks fell for every five that gained. The CSI 300 Index lost 0.3 percent to 2,377.07. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 2 percent at the close in New York yesterday.

The Shanghai Composite has declined 5 percent in December as concern about an economic slowdown overshadowed the first cut in reserve requirement ratios in three years on Nov. 30.

For the year, the measure is down 21 percent after the central bank raised interest rates three times to curb inflation and exports to Europe slowed because of the region’s debt crisis. The index trades at an estimated price-earnings ratio of 10.6 times, a record low, according to data compiled by Bloomberg that began to track the multiple since 2006.

Profit Downgrades

Aluminum Corp., the listed unit of nation’s biggest maker of the lightweight metal, slid 0.6 percent to 6.57 yuan. Shenyin & Wanguo lowered Chalco’s earnings per-share forecast for this year by 38 percent to 0.05 yuan and for 2012 by 18 percent to 0.18 yuan because of rising costs from increases in power rates.

Shandong Nanshan Aluminum Co., China’s second largest aluminum products maker, slipped 0.5 percent to 6.47 yuan. Western Mining Co., the nation’s fourth-largest maker of zinc concentrate, lost 0.2 percent to 9.24 yuan.

Earnings per-share for companies in the Shanghai Composite may grow 9.7 percent in 2011, according to data compiled by Bloomberg. That compared with an increase of 25 percent in the first half of the year, Bloomberg data showed.

‘Tougher Time’

The death of North Korean leader Kim Jong-il may mean a “tougher time” ahead for the Chinese economy, Barclays Capital’s analysts Yiping Huang, Jian Chang and Lingxiu Yang said in a report today. Kim’s death may make investors cautious about China’s political and economic risks, contribute to a faster deceleration in investment and lead to more capital outflows, they said.

In Europe, central bank President Mario Draghi said substantial risks to the economy remain and the law forbids him from increasing government bond purchases to fight the crisis. Europe accounts for about 18 percent of China’s exports, according to Shenyin & Wanguo.

China Cosco, the world’s largest operator of dry-bulk ships, lost 1.5 percent to 5.17 yuan. China Shipping Container Lines, the country’s second-largest carrier of sea-cargo boxes, retreated 1.2 percent to 2.53 yuan.

Reserve Ratios

The central bank will likely cut the required reserve ratio for banks again in the near term, the China Securities Journal said in a commentary today. Monetary policy may change to neutral from tight with a “prudent” tone, according to the commentary. Required reserve ratio cuts are the priority policy tool to fine tune the money supply, it said.

A gauge of property stocks on the Shanghai Composite rose 0.1 percent. Vanke, the nation’s biggest listed property developer, climbed 0.9 percent to 7.50 yuan. Poly Real Estate, the second largest, added 0.1 percent to 10.08 yuan. Gemdale Corp. gained 1 percent to 4.91 yuan.

Chinese home transactions declined in 29 out of 35 cities tracked by Soufun Holdings Ltd. during Dec. 12-18, with 11 cities seeing drops exceeding 50 percent. Transactions fell more than 60 percent in at least 5 cities, Soufun said.

China may start to “slowly” relax property curbs from the third quarter next year, Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co., said in a late afternoon briefing in Beijing yesterday. She expects three cuts in lenders’ reserve requirements in the first half of 2012.

--Zhang Shidong. Editors: Allen Wan, Darren Boey

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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


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