Bloomberg News

China Stocks Fall as Earnings Slump Overshadows Easing Inflation

January 12, 2012

Jan. 12 (Bloomberg) -- China’s stocks fell for a second day as speculation corporate earnings growth will slow because of the decelerating economy overshadowed a government report showing inflation eased.

Chongqing Department Store Co. dropped the most since November 2008 after profit trailed analysts’ estimates. Northeast Securities Co. led a decline for brokerages after it posted a loss last year. Changzhou Eging Photovoltaic Technology Co. and Shanghai Chaori Solar Energy Science & Technology Co. jumped more than 3 percent after a government body said China plans to double solar capacity this year.

“The risks of an economic slowdown on earnings growth have yet to be fully known, making the market volatile,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “Slowing inflation is positive news and that allows the government to further relax tightening policies and add more liquidity to the economy and the stock market.”

The Shanghai Composite Index slipped 1.04 point, or 0.1 percent, to 2,275.01 at the close, erasing a gain of as much as 0.8 percent. About six stocks fell every five that rose on the measure. The CSI 300 Index lost less than 0.1 percent to 2,435.22. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 0.2 percent yesterday in New York.

Stocks rose earlier after a report from the statistics bureau showed inflation moderated for a fifth straight month in December. Consumer prices rose 4.1 percent, compared with the median estimate of 4 percent in a Bloomberg News survey of 26 economists and 4.2 percent in November. Producer prices increased 1.7 percent, the smallest gain in two years, it said.

Inflation, GDP Data

While lower inflation should provide officials with greater scope to ease policy in the months ahead, full-scale policy reversal isn’t on the agenda as senior officials favor “prudent” monetary policy, Brian Jackson, strategist at Royal Bank of Canada, said in a report.

China’s economic growth may have slowed to 8.7 percent from a year earlier in the fourth quarter of 2011, according the median estimate of 24 economists in a Bloomberg News survey. The data are scheduled to be released Jan. 17. UBS AG estimates the pace of expansion may slow to 7.7 percent this quarter.

Chongqing Department Store plunged 8.7 percent to 28.61 yuan. Net income increased 14 percent from a year earlier to 599.3 million yuan in 2011, the company said in a preliminary statement yesterday. That missed the median estimate of 678 million yuan in a survey by Bloomberg News of five analysts. Fourth-quarter revenue rose 8.5 percent, lagging behind the “two-digit” growth of rivals, said Qian Bing and Guo Haiyan, analysts at China International Capital Corp.

Slowing Earnings

Dashang Group Co., a retailer based in the northeast Liaoning province, slid 5.1 percent to 29.48 yuan. Beijing Wangfujing Department Store (Group) Co. fell 3.8 percent to 31.22 yuan.

Northeast Securities led declines for brokerages, retreating 0.9 percent to 13.06 yuan after posting a loss of 151.9 million yuan last year. China Everbright Securities Co., a unit of the nation’s largest state-owned investment group, slid 0.7 percent to 10.42 yuan after it reported a loss of 75 million yuan in December.

Chinese listed companies have started to announce annual earnings reports and will finish before the end of April. Nine companies in the Shanghai Composite have released annual profits for 2011 so far, with an average gain of 29 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

Shanghai Index

Earnings growth for the 300 companies in the CSI 300 may slow to 5 percent compared with the consensus estimate of 19 percent, Manop Sangiambut, head of China A-share research at CLSA Asia-Pacific Markets, said in a report dated Jan. 10.

The Shanghai Composite has advanced 3.4 percent this year on speculation the government will add to a Nov. 30 cut in lenders’ reserve requirements ratio to spur more lending to small companies hurt by a cash crunch. A central bank report released over the weekend showed new lending and money supply exceeded estimates in December. Import growth fell to a two-year low in December, the customs office said this week.

The Shanghai gauge trades at 9.3 times estimated earnings, up from a record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg. The index plunged 22 percent last year after the central bank raised interest rates and reserve requirement ratios to combat inflation.

Eging Photovoltaic jumped 3.2 percent to 20.57 yuan, bringing its gain to 14 percent this week. Chaori Solar advanced 4.3 percent to 14.03 yuan after saying it will supply 150 megawatts of modules this year to China Solar Gmbh.

The head of China’s National Energy Administration Liu Tienan said yesterday that the country plans to double the amount of solar capacity in operation by installing 3 gigawatts this year.

The price for polysilicon, the raw material used to make most solar panels, rose 3 percent last week, the most in eight months, Bloomberg New Energy Finance data showed.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

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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