Chinese stocks dropped the most in two weeks as indexes tracking energy, materials and industrial companies sank to the lowest levels since November 2008.
China Shenhua Energy Co., the nation’s biggest coal producer, slipped 3.6 percent, taking its loss this year to 38 percent. Yunnan Tin Co. plunged 8.7 percent after saying its chairman is under investigation. Zijin Mining Group Co. (601899), China’s largest gold producer, declined for the first time in six days after saying first-half profit probably decreased. Goldman Sachs Group Inc. cut its earnings forecasts for Chinese mining companies, citing lower metal prices and sales.
The Shanghai Composite Index (SHCOMP) fell 2.4 percent to 1,958.27 at the close, after climbing 1.4 percent last week. The CSI 300 Index slid 2.8 percent to 2,163.62. The Hang Seng China Enterprises Index (HSCEI) retreated 1.1 percent in Hong Kong. The ChiNext index of smaller companies lost 2.5 percent.
“There’s a lack of confidence in the economy,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “There’s also concern about possible capital outflows. There’s nothing positive for stocks.”
U.S. employers added more workers than economists expected in June, data July 5 showed, stoking expectations the Fed will be able to taper asset purchases that prompted capital flows into emerging markets.
China’s State Council, headed by Premier Li Keqiang, pledged last week to improve the effectiveness of financial support for the economy after a cash crunch. Misallocation of capital is hampering the restructuring of the economy and the financial sector must play a better role in helping the overhaul, the cabinet said July 5 after equity markets closed. The State Council said it will maintain its “prudent” monetary-policy stance while ensuring a reasonable supply of money and credit.
China’s statistics bureau is scheduled to release June data on inflation tomorrow. Consumer prices probably rose 2.5 percent last month, compared with a 2.1 percent gain in May, according to the median estimate of 40 economists in a Bloomberg survey. Declines in producer prices probably narrowed to 2.6 percent from 2.9 percent, according to the survey.
The People’s Bank of China will release June figures on new yuan loans, money supply and a broader measure of credit known as aggregate financing by July 15.
The Shanghai index has lost 14 percent this year as data from industrial production to exports pointed to a sustained slowdown in the economy and as money-market rates reached record highs. The index trades at 8 times 12-month projected profit after the valuation fell last month to the lowest level in at least five years, data compiled by Bloomberg show.
The CSI 300’s energy gauge plunged 5.5 percent. Shenhua Energy sank 3.6 percent to 15.67 yuan, the biggest drag on the Shanghai Composite. The stock went ex-dividend today. China Petroleum & Chemical Corp. (600028), Asia’s biggest oil refiner, also known as Sinopec, dropped 1.2 percent to 4.14 yuan.
PetroChina Co., the nation’s biggest oil company, added 0.1 percent to 8.07 yuan after reversing a loss of 1.6 percent in a late-trade rally. The shares have gained for eight straight days, the longest winning streak since the stock first traded in 2007. The company was the only one among 27 members of the energy index to rise today.
An index of materials producers lost 4.8 percent, taking its decline this year to 32 percent. Yunnan Tin slumped 8.7 percent to 11.48 yuan, the lowest close since March 2009. Chairman Lei Yi is under investigation for “severe discipline violation,” the company said July 5 after the market closed.
Zijin Mining lost 4.1 percent to 2.56 yuan. The company said first-half profit may have dropped 45 percent to 55 percent as the price of gold and copper declined and costs rose.
Goldman lowered its target price for Zijin Mining by 26 percent to 2.3 yuan and cut its estimate for Yunnan Copper by 9 percent to 6.25 yuan.
“Rising volatility in metal prices will not only have an adverse margins impact but will likely make it more difficult for producers to manage inventory and non-operational businesses such as hedging, leading to potentially unexpected losses,” Goldman analysts led by Julian Zhu, wrote in a report dated yesterday. “Ongoing liquidity tightening may also weigh on those highly leveraged commodities producers.”
UBS AG lowered its rating on Chinese stocks to neutral in a report on July 5, citing the risk of further declines caused by tighter liquidity. In a separate report last week, HSBC Holdings Plc reduced its recommendation on the nation’s shares to underweight from overweight as economic growth slows and the government places more emphasis on reform.
China’s cash squeeze is likely to reduce credit growth this year by 750 billion yuan ($122 billion), an amount equivalent to the size of Vietnam’s economy, according to a Bloomberg News survey of analysts.
The Bloomberg China-US Equity Index sank 1.9 percent last week, extending declines in May and June. Delistings by Chinese companies that traded in the U.S. are outnumbering initial public offerings by the most in at least four years as valuations fall to the lowest since 2008.
So far in 2013, eight Chinese companies have delisted from New York exchanges while only online retailer LightInTheBox Holding Co. (LITB:US) has completed a U.S. IPO, according to data compiled by Bloomberg. In 2010, there were 38 IPOs and three delistings.
Companies in the China-US gauge traded at a 30 percent discount on average to those for the Nasdaq Composite Index last month, the biggest gap since 2008.
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