Bloomberg News

China’s Stocks Fall Most in a Week on Foreign Investment Slump

April 17, 2012

China’s stocks fell, dragging the benchmark index down by the most in a week, as data showing foreign direct investment sank for a fifth month underscored concern Europe’s debt crisis is hurting the economy.

China Vanke Co. and Poly Real Estate Group Co. led a gauge of property developers to the biggest loss among industry groups after the Xinhua News Agency reported Shanghai won’t loosen its property curbs. Tonghua Golden-Horse Pharmaceutical Industry Co. (000766) slipped after the drug regulator suspended sales of its products. Sanan Optoelectronics Co. advanced 1.1 percent after Shenyin & Wanguo Securities Co. said the light-emitting diode industry will improve in the second quarter.

“Recent economic and industry data continue to point to a weakening economy and corporate earnings growth is expected to decelerate as well in the first quarter,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.

The Shanghai Composite Index (SHCOMP) slipped 10.61 points, or 0.4 percent, to 2,346.41 as of 1:33 p.m. local time, set for its biggest drop since April 9. Stocks in the gauge are valued at 9.9 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg. The CSI 300 Index (SHSZ300) declined 0.7 percent to 2,555.29. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 1.5 percent at the close in New York yesterday.

Thirty-day volatility in the Shanghai index was at 18, near a one-week low. About 8.6 billion shares changed hands yesterday, 1.2 percent lower than the daily average this year.

Foreign Investment

The Ministry of Commerce said today in Beijing inbound investment fell 6.1 percent in March from a year earlier to $11.76 billion, after a 0.9 percent decline the previous month and a 32.9 percent jump in March last year. Spending in China by European Union companies slumped by a third in the first two months of the year while U.S. investment rose less than 1 percent, according to ministry data.

“Investment growth is likely to slow as foreign investors are less upbeat on the outlook for China’s economy,” Dariusz Kowalczyk, a Hong Kong-based strategist with Credit Agricole CIB, said before the release.

Today’s stock losses pared the Shanghai Composite’s gains this year to 7 percent amid speculation the government will take measures to boost the economy. China cut the reserve-requirement ratios for county-level banks, Xinhua News Agency reported on April 13, while the People’s Bank of China expanded the range the yuan is allowed to trade within against the dollar for the first time since 2007.

China’s economy expanded 8.1 percent in the first quarter, the slowest pace in almost three years, the statistics bureau reported last week.

Property Curbs

A measure of developers in the Shanghai Composite fell 0.9 percent today, the most among the five industry groups. Vanke, the nation’s biggest listed property developer, slid 2.1 percent to 8.39 yuan. Poly Real Estate, the second largest, lost 1.5 percent to 11.81 yuan. Gemdale Corp. (600383), the fourth biggest, fell 3.3 percent to 6.10 yuan.

Shanghai won’t soften controls or change existing policies on the property market, Xinhua reported yesterday, citing Mayor Han Zheng. China has toughened requirements for down payments and mortgages, and imposed restrictions on the number of homes each family is allowed to buy. The nation’s first-quarter home sales fell 18 percent even as the government reiterated it will maintain curbs on the property market.

Earnings Growth Slows

China will curb economic growth to address overinvestment and bad loans that built up after policy makers used stimulus to combat the 2008 crisis, according to Pacific Investment Management Co., which runs the world’s biggest mutual fund.

“Aside from some cuts in the reserve requirement ratio, we do not expect to see aggressively expansionary policy to combat the incremental economic slowdown that is unfolding right now in China,” Ramin Toloui, the Singapore-based co-head of the global emerging markets portfolio management team, wrote in a report on the company’s website. China’s economic growth will slow to about 7.5 to 8 percent this year, the fund manager said.

Seven hundred and ten companies in the Shanghai Composite have released annual earnings. They posted profit growth of 14 percent on average, trailing analyst estimates by 2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

Contaminated Capsules

Tonghua Golden-Horse dropped 1.4 percent to 4.91 yuan. The State Food and Drug Administration has suspended sales of 13 drugs after media reported the capsules used to hold them contained excessive levels of chromium, according to a statement on its website. Tonghua Golden-Horse is among nine drugmakers whose products have been suspended for inspection, it said.

Sanan Optoelectronics rose 1.1 percent to 11.65 yuan. Ledman Optoelectronic Co. (300162) gained 2 percent to 15.70 yuan. Shenzhen Refond Optoelectronics Co. added 1.5 percent to 15.35 yuan.

The LED industry offers “good investment opportunities” as it will benefit from government subsidies and a pick-up in the LED light market, Yu Bin, an analyst at Shenyin & Wanguo Securities, wrote in a report today.

The IShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., declined for a second day, dropping 0.9 percent to $37.08.

--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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