China's Stocks Fall for Second Day on Economy, Europe Concerns - Bloomberg

By Bloomberg News - 2012-05-31T02:17:25Z

May 31 (Bloomberg) -- Alicia Garcia-Herrero, chief economist for emerging markets at Banco Bilbao Vizcaya Argentaria SA in Hong Kong, talks about the outlook for China's economy and central bank monetary policy. She speaks with Zeb Eckert on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

May 31 (Bloomberg) -- Junheng Li, the founder and senior equity analyst of JL Warren Capital LLC, an independent equity research firm in New York, talks about corporate governance in China and the risks of investing in the domestic stock market. She spoke with Bloomberg's Stephen Engle yesterday in Beijing. (Source: Bloomberg)

China’s stocks fell for a second day as concerns grew Europe’s debt crisis will hurt shipments to the nation’s largest overseas market.

Shanghai International Port (Group) Co. fell 1.4 percent on concern trade to Europe will slow. Jiangxi Copper Co. dropped among commodity producers before a purchasing managers’ index tomorrow that economists say will show manufacturing slowed in May. Chongqing Brewery Co. (600132) slumped 5.7 percent after the company said it has halted its research on a hepatitis B vaccine.

The Shanghai Composite Index (SHCOMP) sank 0.7 percent to 2,368.527 as of 10:16 a.m. local time, extending yesterday’s 0.2 percent drop. The CSI 300 Index (SHSZ300) declined 0.7 percent to 2,625.18. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, lost 2.7 percent in New York.

“The major negative impact on China will be shrinking trade with Europe,” Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co., said by phone today. “If the turmoil spills over to the countries like Italy and Spain, it will cause chaos in global financial markets.”

The MSCI Asia Pacific Index slid 1.4 percent today, joining a global sell-off that dragged the MSCI All-Country World Index down by 1.7 percent yesterday. An opinion poll showed most Greeks want to see the terms of a financial rescue revised. In Spain, the cost of insuring against sovereign default rose to a record.

Largest Market

Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

Shanghai International Port (Group) Co., the operator of the world’s second-busiest harbor, fell 1.4 percent to 2.86 yuan. Dalian Port (PDA) Co. lost 2.7 percent to 3.19 yuan. China Merchants Energy Shipping Co. (601872), the country’s largest operator of international oil tankers, sank 0.9 percent to 3.45 yuan.

The Shanghai Composite has slipped 1 percent this month. It has climbed 7.9 percent this year on optimism the government will ease monetary policies and accelerate approvals of infrastructure projects to spur growth. Stocks in the measure are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

China’s statistics bureau and logistics federation is due to release its purchasing managers’ index for May tomorrow. The measure may fall to 52 from 53.3 a month earlier, according to the median estimate of 26 economists in a Bloomberg survey. Fifty is the dividing line between expansion and contraction.

Jiangxi Copper

Jiangxi Copper, China’s biggest producer of the metal, fell 1.7 percent to 25.59 yuan. Tongling Nonferrous Metals Group Co. (000630), the second largest, lost 2.3 percent to 21.77 yuan. Aluminum Corp. of China Ltd., the listed unit of nation’s biggest maker of the metal, dropped 1.2 percent to 6.85 yuan.

The PMI data comes after the official Xinhua News Agency said in a May 29 article China has no plans for new stimulus measures on the scale unleashed during the global credit crisis in 2008. The nation has cut banks’ reserve-requirement ratios three times since November as its economy grew at the slowest pace in almost three years last quarter.

China may lower the reserve-requirement ratio next month, the official Xinhua News Agency said yesterday, citing Wang Jian, secretary of the macro economy institute of the National Development and Reform Commission. The government is also considering whether to cut interest rates “prudently,” Xinhua reported.

About 9.1 billion shares changed hands in the Shanghai Composite yesterday, 0.3 percent higher than the daily average this year. Thirty-day volatility in the gauge was at 13.7, the lowest level in almost 13 months.

Most Accurate Brokerage

The index is poised to gain 15 percent from yesterday’s close by year-end as slowing inflation allows the government to loosen monetary policy and banks to lend more to companies, according to Beijing Gao Hua Securities Co., Goldman Sachs Group Inc.’s partner in China and the firm with the most correct predictions for yuan-denominated A shares in the two years to January 2012, based on Bloomberg Rankings.

“We remain positive on the market this year,” Wang Hanfeng, China strategist at Gao Hua, said in an e-mailed response to questions. “With inflation easing, there is a shift towards policy loosening which will help improve the liquidity situation and support the valuation expansion of A shares.”

Chongqing Brewery slumped 5.7 percent to 24.32 yuan. The company won’t apply for further clinical trials of the company’s hepatitis B vaccine and will no longer continue the research of the drug, it said in an exchange statement.

U.S. Trading

Chinese equities traded in New York fell, extending the benchmark index’s loss this month to the largest since September. Technology shares led declines on the Bloomberg China-US Equity Index, which has dropped 12 percent in May. Semiconductor Manufacturing International Corp. (SMI) and iSoftStone Holdings Ltd. (ISS) sank at least 7 percent. Online games operator Perfect World Co. (PWRD) tumbled as much as 17 percent after forecasting second-quarter sales will slump.

“China’s growth momentum has been slowing down for months while the manufacturing sector is bumping on the bottom,” Charlie Awdry, who helps manage an $800 million China Opportunities Fund at Henderson Global Investors Ltd., said by phone yesterday from London. Chinese stocks are down because the government’s stimulus measures “are smaller than people thought,” he said.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 1.7 percent to $33.29, deepening this month’s slide to 12 percent.

Perfect World

American depositary receipts of Perfect World dropped 5.9 percent to $10.82, the lowest level since Feb. 1.

The Beijing-based company estimated second-quarter sales to be between 647 million yuan ($101.8 million) and 683 million yuan, according to its May 29 statement. That was below the average forecast of 739 million yuan by six analysts in a Bloomberg survey. Six out of eight analysts updating ratings yesterday cut their 12-month price estimates of the stock, according to data compiled by Bloomberg.

ADRs of Semiconductor Manufacturing, a Shanghai-based circuit-chip maker, tumbled 7.9 percent to a three-year low of $1.86. The ADRs, each representing 50 underlying shares in the company, traded 3.7 percent below its Hong Kong stock.

iSoftStone, an information technology service provider based in Beijing, sank 8.3 percent to $6.18, the lowest level since Oct. 4. The company has reported earnings that disappointed analysts in every quarter since its initial public offering in December 2010, data compiled by Bloomberg show.

--Zhang Shidong. Editors: Darren Boey, Chan Tien Hin

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net