China's Shares Fall to 1-Week Low, Led by Drugmakers, Developers - Businessweek

Most Chinese stocks rose on speculation central banks from the U.S. to China may announce more stimulus measures to boost growth in the world’s largest economies.

Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., China’s biggest producer of rare earth, jumped the most in two weeks after the Economic Information Daily reported the government has started to draft a plan to consolidate the industry. Wuhan Department Store Group Co. led gains for consumer discretionary companies, surging 10 percent in Shenzhen, after regulators approved a shareholders’ plan to buy a stake in the retailer.

The Shanghai Composite Index (SHCOMP) lost 0.98 point, or less than 0.1 percent, to 2,299.81 as of 9:40 a.m. local time, even as two shares rose for every one that fell. The CSI 300 Index (SHSZ300) gained 0.2 percent to 2,562.73. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, jumped 1.8 percent to the highest level since May 16.

“Investors are relieved by positive developments in the U.S. and Europe and there are expectations the central bank will cut the reserve-requirement ratio in July,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. “Still, gains will be limited and we will see fluctuations as there are still concerns about the economy such as property curbs.”

Speculation that a growth slowdown is deepening and Greece will leave the euro area have pushed the Shanghai index down 6.6 percent from this year’s high set on March 2. Stocks in the measure are valued at 10 times estimated earnings, compared with the five-year average of 17.8, Bloomberg weekly data showed.

Stimulus Plans

China’s fiscal policy should be “really proactive” and macroeconomic policies should be readjusted in the following months to sustain faster growth, the China Daily cited a proposal from the Standing Committee of the Chinese People’s Political Consultative Conference National Committee as saying.

The government will take “concrete measures” to stimulate consumption by improving efficiency of its logistics and transportation, the same newspaper cited former assistant minister of commerce Huang Hai as saying.

Shares of Chinese companies that provide basic consumer needs and those that offer discretionary products are diverging by the most in 16 months, a trend that is poised to halt as China takes steps to boost economic growth. The relationship between the MSCI China Index’s consumer staples gauge and the discretionary measure is at the lowest since February 2011, data compiled by Bloomberg show.

Consumer Stocks

Valuations of companies that make basic goods “are quite stretched and competition remains quite fierce, so there are more risks,” Gigi Chan, a fund manager at Threadneedle Investments, which has $123.1 billion in assets under management, said in a June 14 interview in Singapore. “We are finding more interesting ideas in the discretionary space.

A gauge of consumer discretionary stocks had the second biggest gains on the CSI 300, increasing 0.4 percent. Dashang Group Co. added 1.1 percent to 34.45 yuan. Suning Appliance Co. advanced 0.9 percent to 8.79 yuan. Wuhan Department Store rose by the daily limit in Shenzhen trading after the China Securities Regulatory Commission approved shareholders’ plan to buy a stake in the Chinese retailer at a 44 percent premium.

Chinese consumer stocks traded in New York rose after the nation’s commerce minister said Asia’s fastest growing economy is poised for a rebound this month.

Chen Deming told reporters June 18 in Los Cabos, Mexico, that his country’s economic situation in June is improving following government measures to shore up consumption. China’s central bank cut interest rates on June 7 for the first time since 2008 and has lowered required-reserve requirement ratio for banks three times since November to spur lending.

‘Reasonably Optimistic’

‘‘I certainly wouldn’t suggest investors sell Chinese stocks, and I’m quite happy to build positions gently,” Edmund Harriss, who helps manage a $150 million equity fund at Guinness Atkinson Asset Management, said by phone yesterday from London. “If a policy official says June will look better, it will probably turn out that way. I’m reasonably optimistic.”

China announced a cut in interest rates before the release of May economic data which showed consumer prices rose the least in two years while industrial output and retail sales trailed analysts’ estimates.

HSBC Holdings Plc and Markit Economics’ flash China manufacturing PMI for June will be announced tomorrow. The May reading was at 48.4, below the dividing line of 50 which indicated contraction.

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

Operation Twist

Signs of slowing growth amid Europe’s debt crisis could mean the Federal Reserve, which began a two-day meeting yesterday, will extend its so-called Operation Twist, according to JPMorgan Chase & Co. and Jefferies & Co. The program involves selling short-term debt and buying longer-term bonds. A more aggressive response could be warranted if the Fed sees high costs in an economic slowdown.

The central bank may expand its balance sheet, extend Operation Twist and/or lengthen its short-term interest rate guidance beyond late 2014, Goldman Sachs Group Inc. Chief Economist Jan Hatzius wrote yesterday.

With Spain readying a request within days for as much as 100 billion euros ($127 billion) for its struggling banks, euro- area leaders at a Group of 20 summit in Mexico pledged to take “all necessary policy measures” to defend the currency union.

Inner Mongolia Baotou advanced 2.5 percent to 44.68 yuan. China Nonferrous Metal Industry’s Foreign Engineering and Construction Co. increased 2.2 percent to 22.09 yuan, heading for the biggest gains since May 29.

China has started drafting a plan to promote consolidation of the rare earth industry, the Economic Information Daily reported, citing an unidentified official from the State-owned Assets Supervision and Administration Commission.

China ETF Gains

The iShares FTSE China 25 Index Fund (FXI) (FXI), the biggest U.S.- listed China exchange-traded fund, surged 1 percent to a five- week high of $34.90.

Shanghai-based Focus Media Holding Ltd. (FMCN) (FMCN) jumped 6.2 percent to $21.30 in its fourth day of gains. Short sale interest (FMCN) in the company has declined to 7.7 percent of the company’s outstanding shares by June 15, from 9.8 percent a week earlier and 43 percent at the beginning of the year, according to Data Explorers, a New York-based research firm.

Hong Kong-based Michael Kors Holdings Ltd. (KORS) (KORS) gained 4.3 percent to $41.11, the highest level since May 29, as it extended a three-day rally, the longest winning streak in almost a month.

Weibo Upgrade

China Aluminum International Engineering Corp., a unit of the nation’s largest maker of the lightweight metal, plans to issue 363.2 million shares at HK$3.93 to HK$4.73 each and list the shares on July 6, according to the company’s prospectus. Six so-called cornerstone investors, including Yunnan Aluminum Co. Ltd., agreed to buy about $100 million of the offering, the prospectus said.

Aluminum Corp. of China Ltd.’s American depositary receipts added 2.8 percent to a six-week high of $10.94 in New York. The ADRs, each representing 25 underlying shares in the company, traded 2.3 percent above (ACH) its Hong Kong stock, the widest premium since June 7.

Sina Corp., which runs a Twitter-like Weibo service in China, advanced 3.8 percent to $57.05, the strongest level since May 16.

Current Weibo users are being given the option of upgrading for a fee of 10 yuan ($1.57) per month, China National Radio reported on its website yesterday.

The Shanghai-based company also agreed to partner with HTC Corp., Asia’s second-largest smartphone maker, on services and applications for mobile Internet, HTC said in an e-mailed statement to Bloomberg News.

iSoftStone Holdings Ltd. (ISS), a Beijing-based information technology service provider, jumped 9.2 percent to $6.08.

Dick Wei, a Hong Kong-based analyst at JPMorgan Chase & Co., reiterated yesterday his overweight recommendation on the company, maintaining a price target of $18.

LDK Solar Co., the world’s second-largest maker of wafers based in Xinyu of China’s Jiangxi province, sank 6.3 percent to $2.07, leading declines on the Bloomberg China index. Phoenix New Media Ltd. (FENG) (FENG), the Beijing-based Internet, TV and mobile-news provider, retreated for the first time in seven days, dropping 6.3 percent to $5.22 yesterday in New York.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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