Bloomberg News

China’s Stocks Drop on Earnings, European Concerns

March 23, 2012

The Shanghai Composite Index dropped 15 points, or 0.6 percent, to 2,360.52 at 9:50 a.m. local time, the lowest level since Feb. 17. Photographer: Qilai Shen/Bloomberg

The Shanghai Composite Index dropped 15 points, or 0.6 percent, to 2,360.52 at 9:50 a.m. local time, the lowest level since Feb. 17. Photographer: Qilai Shen/Bloomberg

China’s stocks fell, capping the benchmark index’s biggest weekly loss in three months, after a gauge of leading Chinese economic indicators rose at a slower pace and the third-biggest Chinese bank reported lower profit.

China United Network Communications Ltd. (600050), which controls the nation’s second-largest cell phone operator, lost 1.3 percent after the company reported profit that trailed analyst estimates. Agricultural Bank of China Ltd. (3988) fell 0.4 percent after the lender posted its first quarterly profit drop in two years. Developers China Vanke Co. and Poly Real Estate Group Co. slid at least 1.3 percent after the Economic Information Daily said the nation may expand property tax trials.

“The prospect of negative earnings in the first quarter hasn’t been priced in yet,” said Wang Weijun, an analyst at Zheshang Securities Co. in Shanghai.

The Shanghai Composite Index (SHCOMP) dropped 26.23 points, or 1.1 percent, to 2,349.54 at the close, the lowest level since Feb. 14. The CSI 300 Index (SHSZ300) declined 1.2 percent to 2,552.94. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.8 percent in New York yesterday.

The Shanghai Composite fell 2.3 percent this week, the steepest weekly drop since the period ended Dec. 16, after reports showed profits for state-owned companies dropped in the first two months of this year and manufacturing may contract in March. A leading index for China rose at a slower pace in February, with the gauge gaining 0.8 percent from the previous month to 227.2, the Conference Board said, citing a preliminary reading. That compares with a 1.5 percent gain in January.

Europe Economy

This week’s losses for the Shanghai index pared 2012 gains to 6.8 percent. Stocks in the index trade at 9.7 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed. The index lost 22 percent in 2010 and 2011 combined.

Thirty-day volatility on the Shanghai Composite was at 15.3, a four-day high. About 10.9 billion shares changed hands on the main boards of the Shanghai and Shenzhen stock exchanges yesterday, or 16 percent lower than the daily average this year, data compiled by Bloomberg show.

A gauge of European manufacturing fell to 47.7 as factory output unexpectedly shrank in Germany and France, according to London-based Markit Economics. Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

Earnings Miss

Vice Commerce Minister Zhong Shan said today the nation is facing greater pressure to stabilize export growth as “uncertainties” in the world economy increase. The European debt crisis will be difficult to resolve in the short term, Zhong said at briefing in Beijing.

AgriBank (601288) fell 0.4 percent to 2.64 yuan after the bank unexpectedly said its quarterly profit dropped for the first time since listing two years ago due to lending restrictions and higher bad-loan costs.

Net income declined 14 percent to 21.2 billion yuan ($3.4 billion) for the fourth quarter, according to data compiled by Bloomberg based on full-year figures reported by the lender yesterday. That fell short of the 28.84 billion-yuan average estimate of 20 analysts in a Bloomberg survey.

Industrial & Commercial Bank of China (601398) Ltd., the nation’s biggest lender, fell 0.9 percent to 4.30 yuan. Bank of China Ltd., the fourth largest, lost 1 percent to 2.95 yuan.

China United slid 1.3 percent to 4.48 yuan after saying 2011 net income rose 14 percent to 1.4 billion yuan. That compared with the average profit estimate of 13 analysts for 2.2 billion yuan.

Property Taxes

China Unicom (Hong Kong) Ltd. (CHU), the nation’s second-largest mobile phone company and a unit of China United, will boost capital spending 30 percent this year, Chief Executive Officer Chang Xiaobing told reporters in Hong Kong yesterday, while Chief Financial Officer Li Fushen said profit margins “will be under pressure” in 2012 as the company faces higher marketing and network costs.

Vanke, the nation’s biggest listed property developer, fell 1.3 percent to 8.12 yuan. Poly Real Estate, the second biggest, declined 1.4 percent to 10.60 yuan. China Merchants Property Development Co. retreated 2.4 percent to 19.79 yuan.

The cities of Guangzhou and Shenzhen may follow Chongqing and Shanghai in starting property tax trials, the Economic Information Daily reported today, citing Jia Kang, head of the Finance Ministry’s research institute for fiscal science, and Wang Haibin, an analyst at Shenzhen World Union Properties Consultancy Co. Property tax trials should be widened to target existing home owners, it said.

Kweichow Moutai Co. (600519), China’s biggest producer of baijiu liquor by market value, rose 3.3 percent to 212.02 yuan, its highest close since Dec. 2. Net income increased 73 percent last year, the liquor maker said yesterday.

Kweichow Moutai may raise product prices by about 30 percent “soon,” Tong Xun, an analyst at Shenyin & Wanguo Securities Co., wrote in a report today. He recommends buying the stock.

--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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