Bloomberg News

China’s Stocks Decline to 2009 Low; B Shares Slump on New Rules

July 31, 2012

China’s stocks fell to the lowest level in more than three years amid concern the slowing economy will hurt earnings growth. Foreign-currency denominated B shares dropped for their biggest two-day loss in almost a year.

Chinese steelmakers, including Baoshan Iron & Steel Co. and Angang Steel Co., slid after posting a 96 percent drop in first- half profit. Kama Co. led declines by B shares on concern stricter rules by the exchange may lead to companies being delisted. China Railway Group Ltd. (601390) gained after the government boosted investment in railways for the second time in a month.

The Shanghai Composite Index (SHCOMP) fell 0.3 percent to 2,103.64 at the close, the lowest since March 2009. The gauge, Asia’s worst-performing gauge this month with a 5.5 percent loss, has tumbled 14.5 percent from this year’s high on March 2. The Shanghai B-Share Stock Price Index slumped 0.9 percent for a two-day, 6.5 percent loss, the most since Aug. 2011.

“The declining trend hasn’t changed, as the economy is bad,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “We could see some short-term gains but in the mid- to-long term it’s going to continue to fall unless we see more policy loosening.”

The CSI 300 Index (SHSZ300) fell 0.1 percent to 2,332.92. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, dropped 1.4 percent in New York. The Shanghai index is valued at 9.4 times estimated profit, compared with the three-year average of 14.7.

Steelmakers Drop

Baoshan Steel declined 0.5 percent to 4.20 yuan. Angang Steel fell 0.5 percent to 3.66 yuan.

Aggregate profit of the nation’s steelmakers was 2.39 billion yuan ($375 million) in the first six months of the year, Zhang Changfu, general secretary of the producer-funded China Iron and Steel Association, told reporters in Beijing, without providing an aggregate year-ago figure. Profit margins shrank to 0.13 percent from 3.06 percent a year ago, he said.

China’s economy expanded 7.6 percent in the second quarter, the slowest pace in three years, as Europe’s debt crisis sapped exports and a crackdown on property speculation curbed domestic steel demand. Some producers, including Maanshan Iron & Steel Co., the nation’s second-biggest, are halting plants for maintenance to cope with the price plunge.

Gauges of materials and energy stocks were among the three worst performers in the CSI 300 out of the 10 industry groups. Jiangxi Copper Co., the biggest producer of the metal, dropped 2.7 percent to 20.04 yuan, adding to yesterday’s 5.7 percent slide. Yanzhou Coal Mining Co. fell 2.2 percent to 18.26 yuan.

Thirty-day volatility in the Shanghai index was at 14.3. About 5.2 billion shares changed hands in the gauge yesterday, 31 percent lower than the average this year.

Market Confidence

The government should introduce measures to stabilize the stock market and boost investor confidence, according to a commentary on the front-page of the Securities Times today. Finance and tax agencies should consider cutting the dividend tax and stamp duty, among other measures, a reporter at Securities Times named Xiao Bo wrote.

The Shanghai Composite is poised to fall to levels last hit during the 2008 global financial crisis should it break through 2,100, according to Chart Partners.

“If 2,100 gives way, which looks likely, it warns that the 1,665 low seen in late 2008 will not only be tested but should be broken,” Thomas Schroeder, a Bangkok-based managing director at Chart Partners, wrote in an e-mailed response to questions yesterday. “I have targets at 1,700 and then near the 1,500 region upon a breach of the 2008 low.”

B Shares

Tsann Kuen (China) Enterprise Co., a manufacturer of household electrical appliances, plunged 9.1 percent, sliding for a seventh day on speculation the company will become among the first to be removed from trading in the B-share market. The Shanghai and Shenzhen stock exchanges announced on July 7 that companies will be delisted should their stock prices trade below par value of 1 yuan for 20 consecutive days.

Kama, a maker of diesel engines and tractors, tumbled 9.9 percent to 29.2 U.S. cents. Shanghai Dajiang (Group) Stock Co. sank 7.9 percent to 23.2 U.S. cents.

“The B-share markets are marginalized and illiquid,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Many companies’ stock prices are very low and close to their par values so that’s caused concern that some of them will be expelled from trading.”

China Railway Group gained 0.8 percent to 2.53 yuan. China Railway Construction Corp. advanced 2.9 percent to 4.68 yuan.

The Ministry of Railways, the nation’s largest corporate debt issuer, plans to spend 470 billion yuan ($74 billion) on railroads and bridges this year, according to a bond prospectus issued yesterday. That’s the second increase in July, making a combined gain of about 14 percent from the previous figure.

Separately, 28 cities in China are building 2,500 kilometers (1,554 miles) of subway lines from 2010 to 2015, the China Daily reported today.

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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