China’s stocks fell the most in three weeks as pharmaceutical, technology and consumer companies slumped on concern valuations are excessive given the prospect of further monetary tightening and slowing economic growth.
Harbin Pharmaceutical Group Co. tumbled 5.8 percent after the government said it plans to curb gains in medicine prices. NARI Technology Development Ltd., the third best performer on the benchmark index this year, plunged by the 10 percent daily cap. Chongqing Brewery Co. retreated 2.5 percent after Caixin Online reported more than 500 workers went on strike.
“Small-cap stocks such as pharmaceutical and technology companies are too expensive and their earnings growth cannot catch up with share price gains,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai. “We’ve yet to see any sign that the government will rein in tightening measures.”
The Shanghai Composite Index dropped 47.02, or 1.8 percent, to close at 2,513.22, after touching its lowest level since April 2009. The decline was the biggest since May 31 and capped a 2.2 percent loss for the week, when China’s markets were shut for the first three days. Trading volumes on the Shanghai stock market yesterday were the lowest since Dec. 31, 2008, according to Bloomberg data.
The CSI Smallcap 500 Index, which tracks smaller companies, slid 4.2 percent today, the most since May 17.
The Shanghai gauge has lost 23 percent this year, the third-worst performer among 93 global indexes tracked by Bloomberg, on concern government measures to rein in housing prices and the European debt crisis will damp growth. Russia’s weighting in Morgan Stanley’s emerging-market model was increased, helping it to overtake China, strategist Jonathan Garner wrote in a report yesterday.
Harbin Pharmaceutical lost 5.8 percent to 19.06 yuan, paring its gain to 3.2 percent this year. Tianjin Tasly Pharmaceutical Co. tumbled 8 percent to 27.57 yuan, the steepest loss since June 2008. Beijing Tongrentang Co., a manufacturer of traditional Chinese medicine, fell 5.4 percent to 24.49 yuan.
China’s National Development and Reform Commission will draw up a plan to curb “substantial” gains in medicine prices and curb profiteering, the planning agency said in a statement yesterday after the market closed.
“Mounting evidence is pointing to a more stringent policy for drug pricing,” BofA-Merrill Lynch Global Research analysts Shaojing Tong and Binnie Wong said in a report sent to clients today. “We caution investors of potential headline risks for drug-related stocks, especially after their impressive outperformance” in the first half, they wrote.
An index of health-care stocks slumped 4.6 percent, the second-most among the 10 industry groups in the CSI 300. A four- day, 12 percent slide has erased the index’s gains for the year after a 94 percent rally in 2009.
Technology shares, this year’s best performers, were today’s biggest losers with a 4.9 percent loss. The index trades at 42 times reported earnings, compared with a multiple of 18 times for the broader CSI 300.
NARI Technology Development, a manufacturer of automation products that’s gained 68 percent this year, tumbled 10 percent to 41.04 yuan. Sanan Optoelectronics Co., a manufacturer of lighting emitting diode, dropped 3.8 percent to 41.54 yuan. The stock trades at 77 times reported profit.
China Satcom Guomai Communications Co., a unit of the nation’s only satellite-communications provider, slumped 10 percent to 7.84 yuan after the China Securities Regulatory Commission blocked the company’s plans to sell assets and issue new shares.
Xinjiang Goldwind Science & Technology Co., the country’s biggest listed maker of wind turbines, lost 10 percent to 19.03 yuan, the most since August 2008. The company shelved a plan to raise as much as HK$9.09 billion ($1.2 billion) in a share sale in Hong Kong, citing poor market conditions.
Manufacturers also declined on concern that assembly-line walkouts will increase, adding to costs.
Chongqing Brewery slid 2.5 percent to 36.36 yuan. More than 500 workers at the brewery went on strike yesterday to protest the company’s share selling plan to Carlsberg A/S, Caixin Online reported, citing workers who took part in the strike. Phone calls to Chongqing Brewery’s offices went unanswered.
Employees went on strike yesterday at a Toyota Motor Corp. affiliate in China, following wage disputes at Honda Motor Co. Honda raised salaries 24 percent as two earlier strikes in southern China crippled its production in the world’s largest auto market, helping fan demands for higher pay at rival manufacturers.
SAIC Motor Corp., China’s biggest carmaker, retreated 3.8 percent to 12.05 yuan. FAW Car Co., which makes passenger cars in China with Volkswagen AG, slid 1.4 percent to 16.05 yuan.
Inflation is likely to remain contained this year, the World Bank said in a quarterly report on the Chinese economy today. China should make more use of the exchange rate and interest rates to help manage its economy and reduce the risks from surging housing prices and overinvestment, it said.
China should return to a normalized monetary policy in the second half of the year, Xia Bin, one of the People’s Bank of China’s academic advisers, said at a conference in Shanghai.
Shanghai Zhangjiang Hi-Tech Park Development Co. gained 4 percent to 9.78 yuan, the most since April 21. The company said it will spend 1.02 billion yuan to form an investment company. The new unit will invest in the health-care and financial industries, it said.