Bloomberg News

China Stocks Fall to 1-Month Low on Economy, Investment Concern

May 15, 2012

China’s stocks fell, dragging the benchmark index to the lowest level in a month, after foreign direct investment dropped and Pacific Investment Management Co. said the nation’s economic slowdown may deepen.

Jiangxi Copper Co. and Aluminum Corp. of China Ltd. paced declines for metal producers as the political impasse in Greece fueled concerns that the country may leave the euro area. Yanzhou Coal Mining Co. (600188) slid to the lowest in three weeks after the price of the country’s coal for power stations declined for the first time since at least 2009. Qingdao Haier Co. led a rally for household appliance stocks on speculation the government may introduce stimulus measures for the industry.

“Stocks are falling because there’s a combination of bad news from Europe and China,” said Zhou Lin, an analyst at Huatai Securities Co. in Nanjing. “The Europe crisis is worsening with Greece potentially being kicked out. The Chinese cut in reserve-ratio requirements indicates the government’s concern about the economy’s health. Investors are expecting the growth to slow further in the second quarter.”

The Shanghai Composite Index (SHCOMP) fell 5.9 points, or 0.3 percent, to 2,374.84 at the close, the lowest level since April 17. The CSI 300 Index (SHSZ300) snapped five days of losses, gaining 0.1 percent to 2,617.37. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, tumbled 2.4 percent in New York yesterday.

Investment Slump

The Shanghai index dropped 0.6 percent yesterday even as the central bank announced a third cut in lenders’ reserve ratios since November. About 9 billion shares changed yesterday, 15 percent higher than the daily average this year. Thirty-day volatility in the gauge was at 15.2 today, the lowest since March 27.

For the year, the Shanghai index has climbed 8 percent on expectations the government will relax monetary policy and take measures to bolster equities. Stocks in the gauge are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Foreign direct investment in China fell for a sixth month in April, as faltering global growth and renewed turmoil in financial markets dented company spending in Asia’s biggest economy.

Inbound investment declined 0.7 percent from a year earlier to $8.4 billion, the Ministry of Commerce said today in Beijing. That compares with a 6.1 percent drop in March and extends the longest stretch of declines since the global financial crisis. The estimates of five analysts in a Bloomberg News survey on April investment ranged from a drop of 3 percent to a gain of 8.2 percent.

Deeper Slowdown

Jiangxi Copper, the biggest producer of the metal, slid 1.3 percent to 25.22 yuan. Chalco, the listed unit of nation’s biggest maker of the lightweight metal, declined 0.9 percent to 6.91 yuan.

Asia stocks dropped as the political impasse in Greece added to speculation the nation will leave the euro currency union and Moody’s Investors Service cut the credit ratings of 26 Italian banks, damping demand for riskier assets.

Pimco, which oversees the world’s largest bond fund, sees Chinese growth this year in the “mid-7 percent range,” a pace unseen since 1999. Its call is still lower than that of banks from Citigroup Inc. and JPMorgan Chase & Co. to Bank of America Corp. and UBS AG, which all pared their forecasts after April economic data were released last week.

“Anything less than 7.5 percent GDP growth would border on a disaster,” Michael Mullaney, who helps manage $9.5 billion as chief investment officer at Fiduciary Trust in Boston, wrote by e-mailed response. “Material stocks as a whole will continue to suffer with any incremental weakness.”

Coal Stocks

Yanzhou Coal lost 1.4 percent to 23.26 yuan. China Shenhua Energy Co., the largest coal producer, fell 1.2 percent to 25.95 yuan. The benchmark coal price at Qinhuangdao port with an energy value of 5,500 kilocalories per kilogram fell 0.6 percent from a week earlier to a range from 775 yuan ($123) to 785 yuan a metric ton as of May 13, according to data yesterday from the China Coal Transport and Distribution Association.

Shenhua’s Hong Kong-traded shares were rated hold at UOB- Kay Hian Holdigs Ltd., which said valuations are “not very attractive” amid a margin squeeze and earnings growth deceleration.

China Southern Airlines Co., the nation’s biggest carrier by passenger numbers, declined 0.9 percent to 4.65 yuan. China warned its tourists last week to avoid “unnecessary” travel to the Philippines amid a dispute between the two countries over an island in the South China Sea.

Stimulus Speculation

Qingdao Haier, the biggest maker of refrigerators, surged 7.8 percent to 12.20 yuan. Gree Electric Appliances Inc. (000651), which makes air conditioners, rose 2.8 percent to 21.91 yuan.

“Last month, there was a report saying the government may have more stimulus measures for home appliances,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “That’s due to happen by the first half. It could be that there’s new information on this matter.”

China may set up a new mechanism for foreign pension funds to invest in the country’s capital markets, the Wall Street Journal reported, citing unidentified people familiar with the matter. The program would be separate from the qualified foreign institutional investor program, known as QFII, China’s main official international investment program, the report said. Taiwan, Hong Kong and Singapore pension funds without QFII licenses may be among the first to be included in the new program, the report cited one of the people as saying.

South Korea’s National Pension Service, the country’s biggest investor, plans to seek approval to buy more yuan- denominated Chinese stocks after using up the initial quota of $100 million it received in March.

The IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., retreated 1.7 percent to $34.74 yesterday.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net;

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


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