China's Stocks Swing Between Gains, Losses on Earnings, Economy - BusinessWeek

China’s stocks swung between gains and losses after industrial companies reported slumping earnings and a major government ministry signaled the nation’s economic slowdown may worsen.

Tangshan Jidong Cement Co. (000401) dropped 0.9 percent after posting a wider loss in the first quarter. Beijing Shougang Co. paced a decline for steelmakers after forecasting a loss in the first half from a profit a year ago. China Vanke Co. and China Life Insurance Co. led gains for financial companies after the China Securities Journal reported investment funds bought more shares of developers, banks and insurers in the first quarter.

“We may see a 20 percent or more decline in first-quarter earnings,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “These poor numbers will pressure the market and lead investors to worry about second-quarter profits.”

The Shanghai Composite Index (SHCOMP) dropped 7.78 point, or 0.3 percent, to 2,381.05 as of 10:44 a.m. local time, erasing a 0.3 percent gain. The CSI 300 Index (SHSZ300) declined 0.3 percent to 2,598.18. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.4 percent in New York yesterday.

About 13.4 billion shares changed hands in the Shanghai Composite yesterday, or 51 percent higher than the daily average this year. Thirty-day volatility in the gauge was at 18.6, the lowest in a week.

The Shanghai index has climbed 8.4 percent this year amid speculation the government will take measures to boost the economy. Stocks in the Shanghai gauge are valued at 10.1 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Downward Pressure

China’s economic performance still faces downward pressure, the Ministry of Industry and Information Technology said in a statement ahead of a briefing in Beijing today. Chinese companies face increasing operational difficulties, it said.

Premier Wen Jiabao said the country will maintain steady growth even amid signs the world’s second-largest economy is slowing. The government in March lowered its annual economic growth target to 7.5 percent from an 8 percent goal in place since 2005.

“China has confidence that it will sustain steady and robust economic growth,” Wen said yesterday at a press conference in Stockholm with Swedish Prime Minister Fredrik Reinfeldt, according to an English translation of his remarks. “China will remain committed to reform and opening up.”

Tangshan Jidong Cement fell 0.9 percent to 19.59 yuan. Its net loss widened to 237 million yuan in the first quarter from 11.3 million yuan a year ago, the company said in a statement.

Earnings Slump

Beijing Shougang slid 1.1 percent to 2.77 yuan. The steelmaker said it may report a first-half net loss of between 250 million yuan and 350 million yuan, it said in a statement. Its net income fell 97 percent last year.

Eight hundred and thirty-two companies in the Shanghai Composite have released annual earnings. They posted profit growth of 14 percent on average, trailing analyst estimates by 2.2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

Chinese investment funds increased their average stock holdings by 0.52 percentage point to 78.8 percent in the first quarter from the end of 2011, the China Securities Journal reported today, citing TX Investment Consulting Co. Investment funds bought more shares of real estate developers, banks and insurers in the first quarter, while selling shares of information technology companies and drugmakers, according to the report.

Financial Stocks

A gauge of financial companies in the CSI 300 advanced 0.4 percent, the second most among 10 industry groups. China Vanke, the biggest developer, climbed 1.7 percent to 8.78 yuan. China Life, the largest insurer, rose 1.1 percent to 18.68 yuan. China Construction Bank Corp. added 0.2 percent to 4.78 yuan.

Chinese Internet stocks slumped in the U.S. on speculation declining profit for Facebook Inc. and Apple Inc.’s drop to a six-week low signal that the information technology sector is faltering.

China’s biggest online search engine Baidu Inc. (BIDU) (BIDU) slid to the lowest since March 7 after forecasting second-quarter sales growth below analysts’ estimates.

The IShares FTSE China 25 Index Fund (FXI) (FXI), the biggest Chinese exchange-traded fund in the U.S. rose for the fifth time in six days, climbing 0.5 percent to $37.19 yesterday.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

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