China's Stocks Rebound From Five-Month Low on Policy Outlook - Businessweek

China’s stocks swung between gains and losses after Daiwa Securities Group Inc. reduced its economic growth forecast for China, becoming the third brokerage in as many days to do so.

Inner Mongolia Baotou Steel Rare Earth Hi-Tech Co. led a gauge of material producers lower after Japan’s second-largest brokerage cut its second-quarter growth estimate for China. Shanxi Coal International Energy Group Co. tumbled 7.7 percent after the board approved the resignation of its chairman. Kangmei Pharmaceutical Co. gained 2.7 percent after Tebon Securities Co. said drug company sales may improve in June.

The Shanghai Composite Index (SHCOMP) slid 0.3 percent to 2,216.36 as of 10:24 a.m. local time, after changing directions at least five times. The CSI 300 Index (SHSZ300) declined 0.2 percent to 2,450.70. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.2 percent in New York.

“The market is bearish on the long-term outlook for China’s economic growth and we haven’t seen a new driver for the economy emerge so far,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “With property measures likely to be tightened in big cities, the growth outlook will become gloomier.”

About 5.3 billion shares changed hands in the Shanghai Composite yesterday, 38 percent lower than the daily average this year. Thirty-day volatility in the gauge was at 16, the highest since May 14.

Daiwa GDP Cut

The Shanghai Composite has fallen 6.3 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 9.69 times estimated earnings, compared with the average of 17.6 since Bloomberg began compiling the data in 2006.

Daiwa cut its second-quarter growth forecast for China to 7.8 percent from 8.2 percent and its 2012 growth estimate to 8.3 percent from 8.4 percent, analysts Mingchun Sun and Chi Sun wrote in a note today. Second-quarter growth of 7.8 percent would be the lowest since the global financial crisis in the first quarter of 2009, according to data compiled by Bloomberg. The economic data is scheduled to be released on July 13.

HSBC Holdings Plc yesterday cut its 2012 estimate for China to 8.4 percent from 8.6 percent, while Citigroup Inc. lowered its forecast on June 25 to reflect “anemic” domestic activity in the second quarter and further weakening of European demand.

‘Doldrums’

Baotou Steel led a gauge of material producers to the biggest decline among 10 industry groups in the CSI 300, losing 0.7 percent to 41.40 yuan. Shandong Gold Mining Co., the second biggest bullion producer, declined 1.3 percent to 33.47 yuan.

China’s economy will probably stay in the “doldrums” in coming months, preventing a second-half rally for the nation’s equities, according to the country’s best-performing fund manager. The government will do just enough to prevent the world’s second-biggest economy from slowing further instead of taking more aggressive measures to boost growth, Yu Guang of Invesco Great Wall Fund Management Co. in Shenzhen, said in an e-mailed interview on June 21.

Chinese property, auto and household-appliance stocks may outperform even as the overall market stalls, said Yu, whose Core Competitiveness Fund has returned 25 percent this year, ranking it first among 714 China-based mutual funds, according to data compiled by Bloomberg as of June 25.

“Stocks will be range-bound in the second half of the year,” he said, declining to give equity-index forecasts or name any stock picks. “China’s economy will remain in the doldrums for a while, in line with the trend of the global economy. It’s difficult to see either a big decline or a big rally.”

Policy Easing

Shanxi Coal tumbled 7.7 percent to 21.35 yuan, its biggest decline since March 2011. The company’s board approved the resignation of Du Jianhua from his position as chairman, the coal producer said in a statement.

China may introduce “more proactive” policies to ensure stable growth, the China Securities Journal said in a commentary published on the front page of the newspaper today. Policies to stabilize foreign trade, expand infrastructure investment, fine- tune monetary policies and structurally reduce taxes may be introduced, according to the commentary.

Anhui Conch Cement Co., China’s biggest cement maker, added 1.2 percent to 15.10 yuan. Gansu Qilianshan Cement Group Co. gained 0.9 percent to 10.75 yuan.

Drugmakers Gain

The People’s Bank of China may cut the reserve-requirement ratio next month as funds are expected to remain tight even after the 95 billion yuan ($14.9 billion) of reverse repos by the central bank yesterday, the Shanghai Securities News reported on its front page today. The ratio has been lowered three times since November.

Poly Real Estate Group Co., China’s second-largest developer by market value, climbed 1.3 percent to 11.39 yuan. China Merchants Property Development Co. rose 1.1 percent to 24.75 yuan.

Kangmei Pharmaceutical gained 2.7 percent, while Yunnan Baiyao rose 1.4 percent. The health-care index in the CSI 300 climbed 1.5 percent, the most among 10 industrial groups.

Investors expect Chinese health-care companies to report improving sales in June, said Yang Ying, analyst at Tebon Securities Co.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose 1.1 percent, the most in a week, to $32.19.

“You’re going to see more monetary as well as fiscal easing,” Joseph Tanious, who helps oversee $394 billion as a market strategist at JPMorgan Funds in New York, said in a phone interview. “There’s reason to be cautiously optimistic that growth will pick up in the back half of this year, which should translate into higher stock prices.”

--Zhang Shidong. Editors: Allen Wan, 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; Leon Lazaroff in New York at llazaroff@bloomberg.net

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