Sunday, August 30, 2009

China’s Stocks Slump; Index Set for Worst Month Since October

. Sunday, August 30, 2009

By stockOzone team

China’s stocks fell, with the benchmark index set for its biggest monthly drop since October, as profits declined at Baoshan Iron & Steel Co. and measures to curb lending threatened to derail an economic recovery.

Baoshan Steel, the nation’s biggest steelmaker, plunged 7.1 percent. Industrial Bank Co. slumped 8 percent after Caijing magazine reported the new loan growth this month may be almost half that of July. China Petroleum & Chemical Corp., Asia’s largest refiner, lost 9.5 percent on concern the government will keep fuel prices unchanged to support the economy as crude climbs, squeezing margins.

The Shanghai Composite Index slumped 153.73, or 5.4 percent, to 2,706.96 at the 11:30 a.m. break, set for its lowest level since May 27. About 20 stocks fell for each that rose on the index. The gauge is down 21 percent this month, heading for its first decline this year and the biggest since October, when it slid 25 percent. The CSI 300 Index lost 5.8 percent to 2,870.76.

“The local market bears are convinced that tightening is already underway,” said Howard Wang, head of the Greater China team at JF Asset Management, which oversees $50 billion. “I think that sentiment only can change with either a very strong set of macro numbers in August, laying to rest that tightening will ‘break’ the recovery, or stronger statements from central authorities.”

The gauge has plunged 22 percent since reaching a 15-month high on Aug. 4 as banks reined in lending to avert asset bubbles and policy makers advised industries such as steel and cement to curb overcapacity. Premier Wen Jiabao warned last week that the authorities can’t be “blindly” optimistic as the decline in external demand may continue.

Earnings Decline
Baoshan Iron fell 7.1 percent to 6.41 yuan, extending a 28 percent loss this month. First-half profit plunged 93 percent to 669 million yuan as the economic slowdown curbed demand from automakers and shipbuilders. The company said the “global economy hasn’t recovered substantially and the foundations for a domestic recovery aren’t solid,” threatening prospects for the steel industry.

Angang Steel Co., based in the northeastern Liaoning province, slumped 9.2 percent to 11.18 yuan. Wuhan Iron & Steel Co., based in Hubei province, sank 9 percent to 7.30 yuan.

China Southern Airlines Co., the nation’s biggest carrier, fell 7.4 percent to 5.29 yuan. First-half net income at the Guangzhou-based carrier tumbled 97 percent to 25 million yuan, as it failed to repeat year-earlier foreign-exchange gains.

New Loans
This month’s slump in equities stopped a rally that had sent the Shanghai Composite up 103 percent from a November low on prospects the government’s 4 trillion yuan ($586 billion) stimulus program and a record amount of new loans will ensure the economy grows at least 8 percent this year.

The index’s retreat this month “does look like a healthy correction to me rather than the end of a big move,” Barton Biggs, who runs New York-based hedge fund Traxis Partners LP., told Bloomberg Television on Aug. 28.

Shares on the Shanghai gauge trade at 29.21 times reported earnings, compared with a multiple of 38.75 on Aug. 4. That compares with 19 times for the MSCI Emerging Markets Index.

The nation’s stocks remain “a bright spot” among global equities because of the nation’s strong growth potential, Goldman Sachs Group Inc. said in a research note today, setting a target for the CSI 300 at 4,300 for end-2010.

Industrial Bank, which reported a first-half profit decline this month, retreated 8 percent to 28.49 yuan, the lowest since May 27. Bank of China Ltd. lost 3.1 percent to 3.78 yuan.

Loan Growth
China may have 200 billion yuan of new loans in August, the Beijing-based Caijing magazine reported today on its Web site. That compares with 355.9 billion yuan in new loans in July and 1.53 trillion yuan in June.

Ba Shusong, deputy director of the State Council’s Development Research Center said Aug. 28 the nation’s economic growth may start to slow in the second quarter of next year as the impact of government stimulus policies diminishes.

Brokerages declined on concern lower loan growth will curb stock market activity. Citic Securities Co., the nation’s biggest by market value, dropped 6 percent to 24.88 yuan. Northeast Securities Co. tumbled the daily 10 percent limit to 31.50 yuan.

Wei Jianing, a deputy director at the Development and Research Center under the State Council estimated about 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported on June 29.

Changjiang Securities Co. fell 8.3 percent to 17.54 yuan after the brokerage said it received conditional regulatory approval for its planned rights offer. The company said in April it planned to raise as much as 4 billion yuan in a rights offer.

China Petroleum, or Sinopec, slumped 9.5 percent to 11.20 yuan, the most since Oct. 27. PetroChina, the world’s most valuable company, retreated 5.3 percent to 13 yuan, a third days of declines.

The government will reduce the number of times it adjusts fuel prices at this “critical juncture” for the economy, the state-run Shanghai Securities News reported Aug. 29.

Disclosure: Author does not own any of the stocks discussed here.

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