Bloomberg News

China Stocks Drop as Investment Slump Adds to Economic Concerns

March 15, 2012

China’s stocks fell, driving the benchmark level to the lowest level in almost a month, as a drop in foreign investment boosted concerns a slowdown in the world’s second-biggest economy will worsen.

China Vanke Co. (200002) and Poly Real Estate Group Co. led a gauge of property stocks to its biggest two-day decline since November 2010 after Premier Wen Jiabao said yesterday home prices are still far from reasonable levels. Chongqing Brewery Co. (600132) and Chongqing Changan Automobile Co. paced a decline for companies based in the municipality after Bo Xilai was replaced as the city’s communist party chief. Zijin Mining Group Co. (601899), China’s largest gold producer, dropped 2.3 percent as bullion prices tumbled to an eight-week low.

“The economy is still on a downward trend and first- quarter corporate earnings won’t be very good,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “A further big slump may not be possible because valuations for large companies are pretty low.”

The Shanghai Composite Index (SHCOMP) slid 17.46 points, or 0.7 percent, to 2,373.77 at the close, the lowest since Feb. 20. About three stocks fell for every one that gained. The CSI 300 Index (SHSZ300) declined 0.8 percent to 2,585.55. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 2.3 percent in New York yesterday.

The Shanghai Composite’s loss has pared this year’s gains to 7.9 percent in 2012. Stocks in the index trade at 9.8 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed. About 24.7 billion shares changed hands in the Shanghai index yesterday, the highest since November 2010. Thirty-day volatility on the gauge was at 16.36, close to its highest in almost two weeks.

Investment Slows

Foreign direct investment in China fell for a fourth straight month in February as companies reined in spending amid a slowdown in the world’s second-biggest economy and the prolonged European debt crisis.

Investment declined 0.9 percent to $7.73 billion last month from a year earlier, the Ministry of Commerce said in a statement today, following a 0.3 percent drop in January.

Data last week showed China’s factory output in the first two months of the year rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months. Premier Wen announced at the beginning of a national lawmakers’ congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years.

“If you look at the Chinese data, you should stop debating about a hard landing,” said Adrian Mowat, JPMorgan Chase & Co.’s chief Asian and emerging-market strategist. “China is in a hard landing. Car sales are down, cement production is down, steel production is down, construction stocks are down. It’s not a debate anymore, it’s a fact.”

Property Concerns

A measure tracking property stocks lost 2.5 percent, extending yesterday’s 3.7 percent decline. The two-day slide is the biggest since Nov. 12, 2010.

Vanke, the nation’s biggest listed property developer, fell 1 percent to 8.21 yuan. Poly Real Estate, the second largest, retreated 2.6 percent to 10.72 yuan. Gemdale Corp. (600383), the fourth biggest, slid 4.4 percent to 5.62 yuan. Hangzhou Binjiang Real Estate Group Co. lost 4.8 percent to 7.99 yuan.

“One should be concerned about what’s happening in the China property market,” Mowat said at yesterday’s conference. “People are too complacent that the government can turn what’s going on in this market.”

Bo’s Removal

Chongqing Brewery tumbled 8.2 percent to 33.56 yuan, its biggest decline since Jan. 16. Chongqing Changan, the Chinese partner of Ford Motor Co. and Mazda Motor Corp., fell 3 percent to 4.54 yuan. Chongqing Fuling Electric Power Industrial Co. (600452) dropped 2.7 percent to 9 yuan.

Zhang Dejiang, a North Korean-educated member of China’s ruling Politburo, will replace Bo as the head of Chongqing, the official Xinhua News Agency reported. The replacement comes after Bo’s former police chief, Wang Lijun, went to the U.S. consulate last month in Chengdu, prompting speculation that he was seeking asylum.

“It’s all about the sentiment not about fundamentals,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “It’s a knee-jerk reaction from the market, which interprets the removal of the party chief as negative news for all locally listed companies.”

Repo Rate

Zijin Mining dropped 2.3 percent to 4.32 yuan. Shandong Gold Mining Co., the second largest, fell 2.4 percent to 33.57 yuan. Zhongjin Gold Co. (600489), the third biggest, retreated 2.7 percent to 21.45 yuan.

Gold futures for April delivery retreated 3 percent to settle at $1,642.90 an ounce in New York yesterday on speculation that the Federal Reserve will refrain from offering additional stimulus.

China Petroleum & Chemical Corp. (600028), the nation’s biggest oil refiner, rose 0.7 percent to 7.56 yuan. PetroChina Co., the second largest, added 0.5 percent to 10.23 yuan. The nation may raise gasoline and diesel prices today or tomorrow by about 500 yuan a ton, C1 Energy says on its website yesterday.

In a sign that the government may be taking more steps to support growth, China is easing restrictions on lending capacity at three of the nation’s four biggest banks, officials at the lenders with knowledge of the matter said.

The money-market rate dropped today after the central bank lowered the rate on its 91-day repurchase contract for the first time in three years.

The central bank sold 20 billion yuan ($3.2 billion) of the contracts at a yield of 3.14 percent, down from 3.16 percent a week ago. The seven-day repurchase rate, which measures interbank funding availability, fell 12 basis points to 2.88 percent as of 3:25 p.m., according to a weighted average compiled by the National Interbank Funding Center.

“It’s an easing signal,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “The central bank has more room to bring down money-market rates as inflation trends down.”

--Zhang Shidong. With assistance from Judy Chen in Shanghai. Editors: Allen Wan, Chan Tien Hin

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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