China's Stock Index Erases 2012 Gain After June Plunge - Businessweek

China’s Shanghai Composite Index (SHCOMP), the world’s second worst-performing stocks measure this month, erased this year’s gain on concern a manufacturing slump and the European debt crisis will deepen the economic slowdown.

The Shanghai index dropped 1 percent to 2,195.84 at the close, a seventh day of losses. The gauge has lost 7.4 percent in June. The measure had gained as much as 12 percent this year through its peak on March 2. Trading values on the Shanghai Stock Exchange fell to a five-month low yesterday.

“The economy is still slowing and earnings growth forecasts have further room to be revised downward,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Weak sentiment will dominate as investors have no idea how slow earnings growth will be.”

Dongfang Electric Corp. (600875) paced a decline for industrial companies on concern slowing growth will sap demand.

Economic data this weekend may show China’s manufacturing is contracting. The Purchasing Managers’ Index compiled by the statistics bureau and logistics federation may drop to 49.8 this month, falling below the dividing line of 50 for expansion and contraction, according to the median estimate of 19 economists in a Bloomberg survey. The figure is due July 1.

Dongfang Electric, China’s second-biggest maker of power equipment, tumbled 9.3 percent to 17.63 yuan, the biggest decline this year. Shanghai Electric Group Co., the nation’s biggest, lost 4.6 percent to 4.61 yuan.

Concern that Greece may exit the euro has prolonged Europe’s debt crisis and hurt the outlook for China’s exports to its biggest trading partner.

Growth Target

China’s economy expanded 8.1 percent in the first quarter, the slowest pace in almost three years. Growth may be below 7 percent in the second quarter if this month’s data doesn’t improve, the People’s Daily reported on June 13. Premier Wen Jiabao announced on March 5 an economic growth target of 7.5 percent for this year, down from an 8 percent goal in place since 2005.

The CSI 300 Index (SHSZ300) slipped 0.9 percent to 2,425.73. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.1 percent in New York yesterday.

Stocks on the Shanghai Composite are valued at 9.59 times estimated earnings, compared with the average of 17.6 since Bloomberg began compiling the data in 2006. Thirty-day volatility in the gauge was at 15.08 today, compared with this year’s average of 18.32. About 5.1 billion shares changed hands in the Shanghai Stock Exchange yesterday, 41 percent lower than the daily average this year.

Rare Earths

Investors are opening the fewest accounts to trade equities on record on a 30-day average basis, according to weekly data compiled by Bloomberg that goes back to August 2007.

Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., China’s biggest producer of rare earth, declined 5.5 percent to 37.95 yuan. The European Union requested the creation of a dispute- settlement panel at the WTO on China’s export restrictions on rare earths, tungsten and molybdenum. China, which supplies 90 percent of the world’s rare earth, has said it curbed exports of rare earths to conserve minerals and protect environment.

Gansu Qilianshan Cement Group Co. (600720) slid 2 percent to 10.49 yuan after it said first-half profit may drop more than 50 percent from a year earlier. China Resources Cement, a Hong Kong-listed producer, slumped 6.2 percent after saying yesterday it expects interim profit to fall “significantly.”

“The biggest negative right now for Chinese stocks is that earnings are being cut,” Steven Bell, who manages $600 million in assets as principal portfolio manager at the GLC Ltd., a London-based hedge fund, said by phone yesterday.

--Zhang Shidong. With assistance from Weiyi Lim in Singapore. 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