China's Stocks Drop for Fifth Day on Growth, Europe Debt Concern - Businessweek

Chinese stock-index futures fell, signaling a fifth day of losses for the benchmark index, after HSBC Holdings Plc cut its China growth forecast and concern grew European leaders will fail to tame the region’s debt crisis.

Futures on the CSI 300 Index (SHSZ300) expiring in July, the most active contract, lost 0.4 percent to 2,459.20 as of 9:19 a.m. Shanghai time. SAIC Motor Corp. (600104) may drop after an official with the top economic planner said China has no imminent plans to introduce more stimulus policies to revive vehicle demand. Industrial & Commercial Bank of China Ltd. may lead gains for lenders after the Shanghai Securities News said new loans may rebound this month.

The Shanghai Composite Index (SHCOMP) dropped 1.6 percent to 2,224.11 yesterday, the lowest close since Jan. 16. The CSI 300 Index declined 2.2 percent to 2,456.52. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 2.7 percent at the close in New York.

The Shanghai Composite has fallen 6.2 percent in June, poised for the worst monthly performance since March, on concern the first interest-rate cut since 2008 won’t be enough to prevent economic growth from missing the government’s target of 7.5 percent this year. Stocks in the measure are valued at 9.7 times estimated earnings, compared with the average of 17.6 since Bloomberg began compiling the data in 2006.

The 14-day relative strength measure for the Shanghai Composite, measuring how rapidly prices have advanced or dropped during a specified time period, was at 30.9 yesterday. Readings below 30 indicate it may be poised to rise. About 6 billion shares changed hands in the Shanghai index yesterday, 31 percent lower than the daily average this year. Thirty-day volatility in the gauge was at 16.29, the highest since May 14.

Slowing Growth

HSBC cut its 2012 growth estimate for China to 8.4 percent from 8.6 percent, economists Qu Hongbin and Frederic Neumann wrote in a note. China will step up policy easing measures in the coming months to avert a hard landing, they wrote. The move comes a day after Citigroup Inc. lowered its growth estimate for this year to reflect “anemic” domestic activity in the second quarter and further weakening of European demand.

German Chancellor Angela Merkel hardened her resistance to euro-area debt sharing, setting Germany on a collision course with its allies at a summit starting on June 28. In signs the debt crisis is worsening, Cyprus said it will seek a financial lifeline from the euro area’s firewall funds, and Greek Prime Minister Antonis Samaras consented to the resignation of his finance minister, Vassilios Rapanos.

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

Stocks Optimism

Chinese brokerages are optimistic about the stock market in the second half on expectations that the government will announce “stable growth” measures, the Shanghai Securities News reported today.

CICC expects a rebound in July and August as the pace and intensity of policy easing provides more funds to the market while Guotai Junan Securities Co. forecasts long-term interest rates will drop and loan demand to increase with further reductions in interest rates and reserve requirement ratios in the second half, according to the newspaper.

The central bank will likely cut interest rates again in August to fight the economic slowdown, the China Daily reported, citing Huang Haizhou, chief strategist at China International Capital Corp. The move may be accompanied by another decrease in banks’ reserve requirement ratio, it said.

China’s June new loans may be about 900 billion yuan ($141 billion) to 1 trillion yuan, the Shanghai Securities News reported today. That would be a rebound from 793.2 billion yuan in May and 681.8 billion yuan in April.

Internet Stocks

Internet companies led declines in Chinese stocks traded in the U.S., sending the benchmark index to the lowest level in three weeks, after Citigroup Inc. reduced its expansion estimate for Asia’s biggest economy this year.

The Bloomberg China-US Equity Index of the most-traded Chinese companies sank 2.7 percent at the close of trading in New York to 87.91, the lowest since June 5. The index has declined 2.4 percent in 2012. Online video-sharing websites Youku Inc. and Tudou Holdings Inc. tumbled more than 6 percent while Qihoo 360 Technology Co., a computer security software developer, fell to a four-month low.

Negative Sentiment

“The sentiment continues to be extremely negative and people continue to reduce risk,” Jeff Papp, a senior analyst at Oberweis Asset Management Inc., which manages $700 million, said by phone yesterday from Lisle, Illinois. “GDP growth is being ratcheted down in China given some of the weak data we’ve seen this year.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 2.2 percent to $31.83, the lowest level since October.

Youku, China’s most popular online video website, sank 6.9 percent to a one-month low of $21. The company announced on March 12 a plan to acquire smaller competitor Tudou in a stock swap deal currently valued at $825 million. Tudou lost 6.3 percent to $32.56. The transaction is expected to complete in the third quarter after the approval of shareholders, the companies said in March.

Beijing-based Qihoo, which also develops computer desktop applications, extended its slump to a fourth day, tumbling 4.5 percent to $17.11, the lowest level since February.

51job Inc., an online recruiting service provider based in Shanghai, dropped 3.6 percent to a five-month low of $43.98. NetEase Inc., operator of China’s second-largest online games website, sank 5.4 percent to $56.50, the most since Dec. 21.

21Vianet Group Inc., a Beijing-based Internet data center services provider, declined for the first time in nine days, retreating 5.3 percent to $11.35.

Rate Outlook

The central bank cut interest rates on June 7 for the first time since 2008 following three reductions to the reserve requirement ratio for banks since November.

China won’t have “aggressive” declines in interest rates and investors will “sit on the sidelines” until they see China’s economic recovery, Jing Ulrich, managing director and chairman of global markets for China at JPMorgan Chase & Co., said at a conference in Hong Kong yesterday. Banks are willing to lend but demand for loans is weak, she said.

American depositary receipts of Melco Crown Entertainment Ltd., which operates casinos in Macau, the only Chinese city where they are legal, tumbled 4.1 percent to $11.34, the lowest since June 15. Gabriel Chan, an analyst at Credit Suisse Group AG in Hong Kong, lowered Melco Crown’s 12-month price target to $16.80 from $17.55 while maintaining an outperform rating in a report yesterday.

Elong Inc., a Chinese online travel company whose largest shareholder is U.S.-based Expedia Inc., fell 6.5 percent, the first decline in three days, to $11.09.

--Zhang Shidong. Editors: Allen Wan, Darren Boey

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