Bloomberg News

China’s Stocks Fall for 6th Day After Daiwa Cuts Growth Estimate

June 27, 2012

China’s stocks fell for a sixth day, the longest losing streak in six months, after Daiwa Securities Group Inc. cut its second-quarter growth estimate for the world’s second-biggest economy.

Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co. led a gauge of material producers lower on the prospect of weaker demand. Shanxi Coal International Energy Group Co. (600546) dropped to the lowest level since August 2010 after the board approved the resignation of its chairman. China Oilfield Services Ltd. (2883) and Offshore Oil Engineering Co. jumped more than 6 percent on expectations oil equipment makers will benefit after Cnooc Ltd. invited bids for oil blocks.

“The market is bearish on the long-term outlook for China’s economic growth and we haven’t seen a new driver for the economy emerge so far,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million.

The Shanghai Composite Index (SHCOMP) lost 0.2 percent to 2,216.93 at the close, after changing directions at least 10 times. The six-day decline is the longest since the period ended Dec. 15. The CSI 300 Index (SHSZ300) fell 0.3 percent to 2,447.20. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.2 percent in New York yesterday.

Thirty-day volatility in the Shanghai Composite was at 15.71 today, compared with this year’s average of 18.35. About 5.3 billion shares changed hands in the gauge yesterday, 38 percent lower than the daily average this year.

Daiwa GDP Cut

The Shanghai Composite has fallen 6.5 percent in June, poised for the worst monthly performance since March, on concern the first interest-rate cut since 2008 won’t be enough to prevent economic growth from missing the government’s target of 7.5 percent this year. Stocks in the measure are valued at 9.69 times estimated earnings, compared with the average of 17.6 since Bloomberg began compiling the data in 2006.

Daiwa, Japan’s second-largest brokerage, cut its second- quarter growth forecast for China to 7.8 percent from 8.2 percent and its 2012 growth estimate to 8.3 percent from 8.4 percent, analysts Mingchun Sun and Chi Sun wrote in a note today.

Second-quarter growth of 7.8 percent would be the lowest since the global financial crisis in the first quarter of 2009, according to data compiled by Bloomberg. The economic data is scheduled to be released on July 13.

HSBC Holdings Plc yesterday cut its 2012 estimate for China to 8.4 percent from 8.6 percent, while Citigroup Inc. lowered its forecast on June 25 to reflect “anemic” domestic activity in the second quarter and further weakening of European demand.

‘Doldrums’

Baotou Steel led a gauge of material producers to the biggest decline among 10 industry groups in the CSI 300, losing 3.4 percent to 40.15 yuan. Aluminum Corp. of China Ltd., the listed unit of nation’s biggest maker of the lightweight metal, declined 1.9 percent to 6.27 yuan.

China’s economy will probably stay in the “doldrums” in coming months, preventing a second-half rally for the nation’s equities, according to the country’s best-performing fund manager. The government will do just enough to prevent the world’s second-biggest economy from slowing further instead of taking more aggressive measures to boost growth, Yu Guang of Invesco Great Wall Fund Management Co. in Shenzhen, said in an e-mailed interview on June 21.

Chinese property, auto and household-appliance stocks may outperform even as the overall market stalls, said Yu, whose Core Competitiveness Fund has returned 25 percent this year, ranking it first among 714 China-based mutual funds, according to data compiled by Bloomberg as of June 25.

Policy Easing

Shanxi Coal tumbled 7.7 percent to 21.33 yuan. The company’s board approved the resignation of Du Jianhua from his position as chairman, the coal producer said in a statement.

China may introduce “more proactive” policies to ensure stable growth, the China Securities Journal said in a commentary published on the front page of the newspaper today. Policies to stabilize foreign trade, expand infrastructure investment, fine- tune monetary policies and structurally reduce taxes may be introduced, according to the commentary.

The People’s Bank of China may cut the reserve-requirement ratio next month as funds are expected to remain tight even after the 95 billion yuan ($14.9 billion) of reverse repos by the central bank yesterday, the Shanghai Securities News reported on its front page today. The ratio has been lowered three times since November.

Oil Blocks

China Oilfield surged 6.1 percent to 16.28 yuan while Offshore Oil jumped 7.6 percent to 5.97 yuan.

Cnooc, China’s largest offshore oil explorer, said in a June 23 statement nine blocks in the South China Sea, covering an area of 160,124 square kilometers, are available for exploration and development cooperation with foreign companies this year.

The invitation for bids will benefit Chinese oilfield companies by expanding their business prospects, Xu Ying, an analyst at CSC International Holdings Ltd. in Shanghai, said by phone today.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose 1.1 percent, the most in a week, to $32.19 yesterday.

“You’re going to see more monetary as well as fiscal easing,” Joseph Tanious, who helps oversee $394 billion as a market strategist at JPMorgan Funds in New York, said in a phone interview. “There’s reason to be cautiously optimistic that growth will pick up in the back half of this year, which should translate into higher stock prices.”

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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