China Shares End Lower on Earnings Worries, Sino-Japan Spat - Wall Street Journal

SHANGHAI--China's shares ended lower Tuesday because of concerns about a further deterioration in companies' earnings performance and growing tensions between Beijing and Tokyo over a group of disputed islands.

The benchmark Shanghai Composite Index, which tracks both A and B shares, ended down 0.9%, or 18.96 points, at 2059.54. The Shenzhen Composite Index dropped 0.6%, or 4.75 points, to 859.44. Trading volume on the two exchanges fell to 89.18 billion yuan ($14.1 billion) from CNY123.15 billion Monday.

"The stock market has been dominated by worries about listed companies' earnings performance as there are no signs of a recovery in China's economy," said Everbright Securities chief strategist Teng Yin.

Data from the Ministry of Finance showed that China's central government-owned enterprises reported a 13% decline in combined profit in the January-August period. Chemical and non-ferrous metal companies suffered most from the economic slowdown, according to the figures.

Chalco fell 3.3% to CNY5.05, Yunnan Copper dropped 2.9% to CNY16.57, Tongling Nonferrous Metals lost 3.5% to CNY18.47, and Shanghai Chlor-Alkali Chemical slid 2.9% to CNY8.71.

Analysts said the spat between China and Japan over disputed islands in the East China Sea could add to the bleak outlook for China's economy, hurting already weak investment sentiment.

With rising anti-Japanese protests on the mainland, "investors are fretting about a deterioration in the two nations' trade situation, which will impact China's economy too," said Jacky Zhang, an analyst at Capital Securities.

Chinese customs data show that trade between China and Japan came to $162 billion in the first half of this year, accounting for 9% of China's total export and import volumes during the period.

Shares of companies with close business ties to Japanese firms extended their falls because of worries that the increased hostility in China toward Japan could hurt demand for their products.

Guangzhou Automobile, which has car-making joint ventures with Toyota and Honda, fell 0.7% to CNY5.49 following a 5.9% plunge Monday, and Hefei Rongshida, which is 30%-owned by Sanyo Electric, fell 3.5% to CNY6.89 after a 3.2% decline in the previous session.

Analysts said the benchmark Shanghai index is likely to stay in a range of 2000-2100 this week as hopes for a new stimulus package, which led to a more than 4% rally in the stock market earlier this month, have waned.

"Buying interest has faded because of a lack of policy catalysts. It's very difficult for the stock market to recover in the short term," said Shenyin Wanguo Securities analyst Qian Qimin.

Write to Rose Yu at rose.yu@dowjones.com