China’s stocks fell the most in more than a week as Credit Suisse Group AG and Deutsche Bank AG lowered their Chinese economic growth forecasts and a Moody’s Investors Service cut of Spain’s debt rating hurt prospects for a resolution to Europe’s debt crisis.
Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. (939) paced declines for banks on concern slowing growth will sap demand for loans. Anhui Conch Cement Co., China’s biggest cement maker, slid to a two-month low after Macquarie Group Ltd. cut its recommendation on the stock. Liquor maker Kweichow Moutai Co. (600519) led a gauge of consumer staples stocks to the biggest gain among industry groups on expectations their earnings will better withstand the decelerating economy.
“Major risks still come from overseas and that’ll raise the risk premium for equities,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “Earnings have yet to hit a bottom because a slowdown in economic growth isn’t over.”
The Shanghai Composite Index (SHCOMP) slid 22.98 points, or 1 percent, to 2,295.95 at the close, the biggest slide since June 4. The CSI 300 Index (SHSZ300) lost 0.8 percent to 2,560.42. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.9 percent in New York yesterday.
Concerns that a growth slowdown is deepening and Greece will leave the euro area have pushed the Shanghai index down 6.7 percent from this year’s high set on March 2. Stocks in the measure are valued at 9.95 times estimated earnings, compared with the five-year average of 17.8, Bloomberg weekly data showed.
Thirty-day volatility in the gauge was at 15.42 today, compared with this year’s average of 18.56. About 7.9 billion shares changed hands in the Shanghai Stock Exchange yesterday, 10 percent lower than the daily average this year.
ICBC, the nation’s biggest listed lender, dropped 1.2 percent to 3.95 yuan. Construction Bank, the second largest, fell 0.5 percent to 4.42 yuan. Bank of China Ltd., the third biggest, slipped 1.1 percent to 2.83 yuan.
The China Banking Regulatory Commission is preparing to ease restrictions on bank lending to local government finance vehicles and the property industry, the China Daily reported today, citing an unidentified official at the regulator. Stabilizing economic growth has become the government’s top priority, it said.
Credit Suisse cut China’s growth forecast for 2012 to 7.7 percent from 8 percent and for 2013 to 7.9 percent from 8.2 percent, while Deutsche Bank lowered its 2012 estimate to 7.9 percent from 8.2 percent.
A “meaningful” investment rebound is unlikely in the “foreseeable future,” Tao Dong, an economist at Credit Suisse, wrote in a note to clients. He also lowered his 2012 inflation forecast to 3.1 percent from 3.7 percent, while the 2013 estimate was halved to 2.3 percent on the risk of deflation.
Moody’s downgraded Spain’s credit rating by three steps to Baa3 from A3 yesterday, citing the nation’s increased debt burden, weakening economy and limited access to capital markets. Europe is China’s largest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.
“For the next several months, we are still going to be overshadowed by the macro economic background in Europe,” Sam Mahtani, who oversees about $5 billion as director of emerging markets at F&C Asset Management Plc in London, said by phone yesterday. “China will roll out incremental measures to help the economy and can manage to engineer a soft landing, while what happens in Greece, Spain and Italy will obviously have a very significant impact on sentiment toward emerging markets like China.”
Anhui Conch dropped 1.5 percent to 15.87 yuan, the lowest close since March 30. Gansu Qilianshan Cement Group Co. lost 5 percent to 12.09 yuan. Huaxin Cement Co. (600801), the Chinese affiliate of Holcim Ltd., fell 2.7 percent to 14.31 yuan.
Anhui Conch was downgraded to underperform from outperform amid weaker prices and likelihood that the consensus earnings estimates for the cement industry will be reduced, Pelen Ji, an analyst at Macquarie, wrote in a note dated yesterday.
Macquarie lowered the 2012 earnings estimates for most cement producers by between 10 percent and 25 percent and expected prices of the building material to fall between 6 percent and 14 percent, according to the note.
A measure tracking 23 consumer staples stocks on the CSI 300 climbed 1.3 percent, the most among the 10 industry groups.
Kweichow Moutai, China’s biggest producer of baijiu liquor by market value, rose 2.3 percent to 244.59 yuan. Wuliangye Yibin Co. (000858), the second biggest, advanced 1.8 percent to 32.94 yuan. Luzhou Laojiao Co., a sprits producer in southwest province of Sichuan, gained 1.4 percent to 41.34 yuan.
No Hard Landing
Chinese consumer goods producers posted 18 percent earnings growth on average in the first quarter of this year, compared with a 3.6 percent gain for all companies on the Shanghai Composite, according to data compiled by Bloomberg.
“I believe there will not be any hard landing,” Agnes Deng, the Hong Kong-based head of Hong Kong and China equities for Baring Asset Management, which oversees $48.1 billion, said in a briefing in Hong Kong yesterday. “Stocks valuation has already priced in the risk of a potential hard-landing. I remain optimistic towards China’s equities market.”
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