Bloomberg News

China’s Stocks Drop Below 2,000

November 27, 2012

China’s Stock Futures Decline Before Industrial Profits Data

A man walks past a display showing stock prices at a securities exchange hall in Shanghai, China. Photographer: Qilai Shen/Bloomberg

China’s stocks fell, with the benchmark index closing below 2,000 for the first time since 2009, as the value of shares traded slumped to the lowest in four years. Material and health-care companies led losses.

The Shanghai Composite Index (SHCOMP) dropped 1.3 percent to 1,991.17 at the 3 p.m. local-time close, its lowest level since Jan. 23, 2009. Shares worth 33.1 billion yuan ($5.3 billion) changed hands in the measure yesterday, the least since Nov. 7, 2008, while data showed that the number of A-share trading accounts that made transactions last week fell to 5.6 million, the lowest for a five-day week since at least January 2008.

“Investors are voting with their feet,” Zhang Ling, general manager at Shanghai River Fund Management Co., said by phone. “Regulators need to roll out policies such as encouraging more investments in the biggest stocks to restore investors’ confidence.”

Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. sank 4.5 percent, while Shandong Dong-E E-Jiao Co., a traditional medicine-maker, declined 3.1 percent. JiuGuiJiu Co. tumbled 10 percent after Beijing News said the liquor maker will halt production to replace equipment.

The Shanghai Composite has fallen 9.5 percent this year, heading for a third straight annual loss, as the growth slowed for seven quarters. Investor interest in mainland China-traded shares has waned even as data showed signs of a growth recovery in the world’s second-largest economy. Industrial companies’ profit accelerated 20.5 percent in October, the statistics bureau said today, while factory output and exports both rose last month by the most since May.

Share Discount

The Shanghai gauge dropped 42 percent through yesterday since Aug. 4, 2009, when the gauge reached its highest level since the global financial crisis. The MSCI All-Country World Index (MXWD) rallied 21 percent in the same time.

The CSI 300 Index (SHSZ300) declined 1.2 percent to 2,150.64 today as gauges tracking materials producers and health-care companies both slid 2.2 percent. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong dropped 0.4 percent, paring its advance this year to 6 percent.

Yuan-denominated A shares trade at their biggest discount to their Hong Kong-listed peers since June 2011, according to an index compiled by Hang Seng Bank Ltd. Mainland Chinese are barred from directly trading overseas shares, including those on the Hang Seng China Enterprises Index.

The Shanghai measure trades at 9.5 times estimated profit for 2012, compared with the 17.7 average multiple since Bloomberg began compiling the data in 2006. Thirty-day volatility in gauge was at 13.6, compared with this year’s average of 17.

Plasticizer Additive

Baotou Rare-Earth, China’s biggest producer of rare earth, lost 4.5 percent to 31.99 yuan. Shandong Dong-E E-Jiao sank 3.1 percent to 37.12 yuan.

JiuGuiJiu tumbled the maximum 10 percent for a third straight day, falling to 34.69 yuan. The liquor maker will suspend all production lines to replace equipment, the Beijing News reported, citing President Xia Xinguo. Excessive levels of a plasticizer were found in some JiuGuiJiu samples, Xinhua News Agency reported last week. After the market closed, the company said it is continuing some production lines.

Policy makers have taken steps to revive confidence in the $2.6 trillion stock market and boost economic growth. China Securities Regulatory Commission Chairman Guo Shuqing has reduced transaction fees on equity trades, urged listed companies to pay more cash dividends and changed how initial public offerings are priced. The government also more than doubled allotments under the expanded the qualified foreign institutional investor program in April to $80 billion.

‘No Confidence’

These steps aren’t enough to lure investors back to equities, according to Jingxi Investment Management Co.’s Wang Zheng.

“Investors have no confidence in long-term growth prospects and the government isn’t doing much to reverse the situation,” said Wang, Shanghai-based chief investment officer at Jingxi Investment, which manages $120 million. “Trading values may fall even further.”

The Shanghai Composite dropped below 2,000 during intraday trading twice last week and rallied to close above that level amid speculation of government support. The index first broke above 2,000 in July 2000 and tripled to 6,092.06 on Oct. 16, 2007, according to data compiled by Bloomberg dating to 1991.

The gauge has fallen 1.9 percent since new leaders were named by the ruling Communist Party Nov. 15 amid concern they will fail to accelerate the pace of measures to liberalize the world’s second-largest economy.

Reserve Ratios

China’s stocks will “regain stability” by the first quarter of 2013 because of growth-inducing policies by the new leadership, improvements in macro conditions and recovery in the U.S., Chongkyu Juhn, a strategist at Samsung Securities Co., wrote in a note to clients. The Shanghai Composite will trade in the 2,000-2,400 range, he wrote.

The Shanghai gauge slid to 1,995.17 on Nov. 21 before rallying to close 1.1 percent higher at 2,030.32 amid speculation the People’s Bank of China will cut banks’ reserve ratios, Li Jun, a strategist at Central China Securities Co., said that day.

The measure sank to an intraday low of 1,995.72 on Nov. 19 and rallied in the final hour of trading to close 0.1 percent higher, which may have been spurred by government buying, according to Auerbach Grayson & Co.

The gauge breached 2,000 for less than two minutes during trading on Sept. 26 before rising 4.1 percent in the two days that followed. The Shanghai Securities News reported Sept. 27 there was speculation the China Securities Regulatory Commission would announce measures to boost stocks.

--Zhang Shidong. Editors: Richard Frost, Darren Boey

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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