Chinese stocks fell, dragging down the benchmark index by the most in a week, before the start of the country’s leadership congress and U.S. presidential elections. [bn:WBTKR=600115:CH]
China Eastern Airlines Corp. , the nation’s second-biggest domestic carrier, slid 3.1 percent after Credit Suisse Group AG downgraded the stock to underperform. Liquor maker Kweichow Moutai Co. (600519) paced declines for consumer staples producers on speculation recent gains were excessive relative to earnings prospects. Aluminum Corp. of China Ltd. and China Coal Energy Co. led losses for metal and energy producers on concern Europe will struggle to contain its sovereign debt problems.
The Shanghai Composite Index (SHCOMP) slid 0.4 percent to 2,105.99 at the close, the biggest decline since Oct. 26. The CSI 300 Index (SHSZ300) dropped 0.4 percent to 2,292.21. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong slipped 0.2 percent.
“Investors are cautious ahead of the congressional meeting and U.S. voting,” Hao Hong, managing director of research at Bank of Communications, said in e-mailed comments from Beijing. “Typically, the Chinese market tends to underperform before the meeting.”
President Hu Jintao is due to hand over the Communist Party leadership to Vice President Xi Jinping at a congress that begins Nov. 8.
Trading volumes in the Shanghai Composite exceeded the 30- day average for this time of day by 7.1 percent, data compiled by Bloomberg show. Thirty-day volatility in the gauge was at 16.4 today, lower than this year’s average of 17.2. The Shanghai index trades at 10 times estimated profit after falling 4.3 percent this year, compared with the 17.8 average multiple since Bloomberg began compiling the weekly data in 2006.
China Eastern dropped 3.1 percent to 3.43 yuan, while the Hong Kong-traded shares slid 3.1 percent to HK$2.83 after Credit Suisse cut its recommendation from outperform on concern slumping travel to Japan will hurt profit. China Southern Airlines Co. (600029), the nation’s biggest carrier by fleet size, slumped 2.4 percent to 3.63 yuan.
Tensions between China and Japan escalated after Prime Minister Yoshihiko Noda’s government said it would purchase disputed islands from their private Japanese owner, prompting China to dispatch government vessels near the islands known as Diaoyu in Chinese and Senkaku in Japanese.
Kweichow Moutai, which jumped a combined 13 percent in September and October, lost 2.9 percent to 235.93 yuan. Wuliangye Yibin Co. (000858), the second-largest baijiu maker, retreated 2 percent to 33.02 yuan. Investors are selling shares of the liquor makers because of speculation fourth-quarter sales may be disappointing and recent rallies were excessive, Wang Ping, an analyst at Great Wall Securities Co., said yesterday.
Third-quarter profit for Chinese listed companies fell 3.4 percent from a year earlier, accelerating from a 1.8 percent drop in the second quarter, Huang Xindong and Chen Jianxiang, analysts at Shenyin & Wanguo Securities Co., wrote in a report dated yesterday. Net income for companies excluding financials fell 18.2 percent in the period, matching the decline in the second quarter, according to the report.
“Investors have doubts about the economic recovery and many expect it to be weak and won’t help improve corporate earnings,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Expectations about policy support for the stock market have faded as the party congress draws closer.”
U.S. voters decide between giving President Barack Obama another four years in office or replacing him with Republican challenger Mitt Romney tonight. Obama led Romney 48 percent to 45 percent in an Oct. 31-Nov. 3 national poll conducted by the Pew Research Center, a survey that showed the candidates tied at 47 percent a week ago. Romney has said he will label China as a “currency manipulator” if elected.
China has sole decision-making power on its exchange-rate policy and the yuan’s appreciation against the dollar in recent weeks has been driven by market demand, He Jianxiong, director- general of the People’s Bank of China’s international department, said in an interview in Mexico City yesterday.
“Romney is a trade-war risk,” said BoCom’s Hong. Neither him nor Obama “is market friendly in a market that has failed to break new ground after” U.S. quantitative easing, he said.
The National Bureau of Statistics is due to release October economic data on Nov. 9. Industrial production probably rose 9.4 percent from a year earlier, accelerating from a 9.2 percent gain a month earlier, according to the median estimate of 30 analysts in a Bloomberg survey. Producer prices may have fallen 2.8 percent last month, compared with a 3.6 percent decline in September, the survey showed.
Xi, scheduled to take over the presidency in March, may face economic growth of 7 percent in 2013, the slowest in 23 years, according to Pacific Investment Management Co., which runs the world’s largest bond fund.
“The leadership change is dragging on investor sentiment,” said Gavin Parry, managing director of Hong Kong- based Parry International Trading Ltd. “You’ve got a couple of things going on. There is speculation that more hardline conservatives could slow down the reformist agenda. There is also a feeling that not much in the way of stimulus measures will get announced from now through the next few months as the new leadership settles in. That’s finally beginning to sink into investors’ minds, the closer we get to the start of the congress.”
Chalco, the listed unit of nation’s biggest maker of the lightweight metal, slid 1 percent to 4.89 yuan. China Coal, the second-largest coal producer, lost 0.8 percent to 7.19 yuan.
As Greece seeks a 31 billion-euro ($40 billion) financing tranche this month, Prime Minister Antonis Samaras is facing down a revolt in his three-party coalition. The leader of the Democratic Left yesterday reiterated his party’s opposition to changes in the labor law demanded by international creditors.
Chinese stocks traded in New York rose yesterday, led by Semiconductor Manufacturing International Corp. and Sina Corp. (SINA:US), after they reported better earnings than analysts predicted.
The Bloomberg China-US Equity Index of the most-traded Chinese shares in New York added 0.5 percent. The Standard & Poor’s 500 Index (SPX) rose 0.2 percent before the Nov. 6 U.S. presidential election.
Option traders (FXI:US) are turning less bearish on Chinese stocks. The number of outstanding puts on iShares China ETF, or rights to sell, was 1.3 times that of calls, or options to buy, on Oct. 19, the lowest since June, according to data compiled by Bloomberg. The ratio was 1.4 on Nov. 1, the latest date for which data was available.
--Zhang Shidong and Weiyi Lim. Editors: Allen Wan, Darren Boey
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at firstname.lastname@example.org; Weiyi Lim in Singapore at email@example.com
To contact the editor responsible for this story: Darren Boey at firstname.lastname@example.org