Chinese stocks in New York slid to the lowest level since September, led by telecommunications providers and industrial companies, on speculation slower economic growth will erode company earnings.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in the U.S. fell 2.4 percent to 86.44, the lowest close since Sept. 5. China Telecom Corp. (CHA:US), the nation’s biggest fixed-line carrier, and China Unicom (Hong Kong) Ltd. tumbled to the lowest in at least nine months. Aluminum Corp. of China Ltd. (ACH:US) sank to a four-year low, while casino operator Melco Crown Entertainment Ltd. (MPEL:US)’s American depositary receipts traded 3.2 percent below the company’s shares in Hong Kong.
The International Monetary Fund reduced China’s growth forecast for this year April 16 after the government reported economic expansion slowed in the first quarter and industrial production grew less than analysts expected. The China-US gauge has slumped 13 percent in 2013 to trade at 11.7 times estimated earnings, about 50 percent below their valuation in March 2012.
“The growth environment is not necessarily supportive,” Michael Wang, an emerging markets strategist at Amiya Capital LLP in London, said by e-mail. “The lower potential growth rate going forward means you may not see the same valuation multiples as before.”
The iShares FTSE China 25 Index Fund (FXI:US), the largest Chinese exchange-traded fund (FXI:US) in the U.S., dropped 2.1 percent to $34.83 in New York, also the lowest level since September. The Standard & Poor’s 500 Index declined 1.4 percent to 1,552.01 as results at companies from Bank of America Corp. to Textron Inc. came in below analysts’ forecasts.
The IMF lowered China’s growth forecast for this year to 8 percent from 8.2 percent this week. China’s economic growth slowed to 7.7 percent in the first quarter, after accelerating to 7.9 percent in the last three months of 2012, while industrial-production growth fell to 9.5 percent from 10 percent.
The yuan’s floating trading band will be widened even further “in the near future,” Yi Gang, deputy governor of the People’s Bank of China, said at an International Monetary Fund conference in Washington yesterday. The China Daily yesterday quoted Wang Yu, deputy director-general of the central bank’s research bureau, as saying that the next step in China’s exchange-rate reform will be further widening of the band.
“The exchange rate is going to be more market-oriented,” Yi said. “Last year they increased the floating band from 0.5 percent to 1 percent. I think in the near future they’re going to increase the floating band even further.”
Non-deliverable 12-month yuan forwards were little changed at 6.2530 per dollar.
China Telecom tumbled 3.8 percent to $45.73 in New York, the lowest close since July 18. China Unicom, the nation’s second-largest mobile-phone company, fell 3.6 percent to $12.21, the lowest since June 11, 2010, and China Mobile Ltd., the world’s largest phone company by users, lost 1.7 percent to $51.76.
James Weir, who helps manage $260 million Asian stocks at Guinness Atkinson Asset Management in London, said he still favors China Mobile as the company dominates the wireless market.
“We are not spooked by the recent decline,” said Weir. “China Mobile is in a pretty good shape. These are good consumption stories.”
All three Chinese telecommunications companies reported higher earnings than were expected by analysts last month as increasing use of smartphones boosted sales.
China Mobile’s net income rose 6.1 percent to 36 billion yuan ($5.8 billion) in the fourth quarter, from 33.9 billion yuan a year earlier, according to figures derived from full-year data the Beijing-based carrier reported March 14. Profit was projected at 32.3 billion yuan, according to the average of five analysts’ estimates compiled by Bloomberg.
China Mobile’s share of the nation’s total 1.12 billion wireless users fell to 64 percent in January from 66 percent a year earlier, according to data released February.
ADRs of Melco Crown, which operates casinos in Macau, declined 3.7 percent to $22.14, the lowest close since April 5. The slump left the ADRs trading 3.2 percent below equivalent shares in Hong Kong, reversing a 1.7 percent premium April 16.
Qihoo 360 Technology Co. (QIHU:US), owner of China’s most-used web browser, gained 2.2 percent to $31.12. Barclays Plc started coverage on the stock with an overweight recommendation and a price target of $38.
Aluminum Corp. (ACH:US), known as Chalco, fell 3.6 percent to $9 in U.S. trading, the lowest level since November 2008. The ADRs have slumped 8.4 percent over four days.
The Shanghai Composite Index (SHCOMP) slipped 0.1 percent to 2,193.80 yesterday as most domestic Chinese stocks on the measure gained. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong retreated 1.2 percent to 10,300.93, the lowest close since Nov. 20.
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