China's Stocks Decline to 14-Month Low on Slowing Economic Growth Concern

China’s stocks slumped, driving the benchmark index down the most in six weeks, on concern the nation’s property curbs and Europe’s debt crisis will slow growth in the world’s third-largest economy.

The Shanghai Composite Index retreated 108.23, or 4.3 percent, to close at 2,427.05, the most since May 17 and the lowest close in 14 months, after the Conference Board revised down its April gauge for China’s economic outlook to indicate a weaker expansion. Declines deepened after the gauge fell below a technical support level at 2,481.

“There remains uncertainty over the magnitude of a slowdown in Chinese growth,” said Michael Liang, chief investment officer at Foundation Asset Management (HK) Ltd., which oversees $120 million. “Today’s break below a key technical level is prompting a rush of selling.”

Jiangxi Copper Co. paced losses by commodity producers as raw material prices slumped and Citigroup Inc. said Chinese exports face “strong headwinds.” Bank of China Ltd. dropped among lenders on concern Agricultural Bank of China Ltd.’s initial public offering may divert investor funds away from existing equities. Health-care and technology shares led declines by small-company stocks on valuation concerns.

The Shanghai Composite has tumbled 22 percent this quarter, heading for the biggest loss since the three months to March 2008, as policy makers tightened rules for the property market and concern grew that Europe’s austerity measures will hurt demand in China’s largest export destination. The equity index is the world’s third-worst performer this year, down 26 percent.

The CSI 300 Index, which tracks stocks in the Shanghai and Shenzhen markets, fell 4.6 percent to 2,592.02 today.

Conference Board

The leading economic indicator for China rose 0.3 percent in April, less than the 1.7 percent gain reported on June 15, the Conference Board said. The previous release contained a “calculation error” for total floor space on which construction began, the research group said in a statement today.

“This correction doesn’t affect our outlook for the Chinese economy,” William Adams, resident economist for the Conference Board in Beijing, said in a telephone interview. “Growth was not likely to accelerate in China, and in fact, a moderation is possible. This correction also supports the same view.”

Analysts are split on whether the People’s Bank of China will raise interest rates this year from crisis levels after having increased bank reserve requirements, set a lower target for lending and eased the currency’s peg to the dollar, according to a Bloomberg News survey last week.

China’s annual growth will slow to 9.3 percent next year from 10.1 percent this year, according to the median forecasts in Bloomberg News surveys of economists.

Commodity Producers

Concerns over the prospect for growth sent both copper and nickel prices down by more than 3 percent. Crude oil declined 1.9 percent to $76.74 a barrel.

Jiangxi Copper, China’s biggest producer of the metal, slumped 7 percent to 25.52 yuan, the most since Nov. 27. Aluminum Corp. of China Ltd., the nation’s largest maker of the lightweight metal and also called Chalco, dropped 4.9 percent to 9.45 yuan. Zijin Mining Group Co., the biggest gold producer, slid 6.4 percent to 6.30 yuan.

The Shanghai Composite’s breach of a “double-bottom” at 2,481 today is a “bearish signal” for China’s stocks, Jamie Coutts, technical analyst at BGC Partners in Singapore, said in e-mailed comments.

A double bottom is a chart pattern showing a drop in price, followed by a rebound and then another drop to the same price, usually indicating support at that level.

Today’s retreat capped a five-day, 6.2 percent decline for the Shanghai Composite. That’s the longest losing streak in two months.

Stock Valuations

Chinese stocks will probably stay “range-bound” pending clarity on policies and the economy, Shen Minggao, head of China research at Citigroup, said in a report.

“While low valuations are attractive in the near term, risks lurk in terms of earnings downgrades or policy reversal,” Shen said. “Macro policies remain directionless.”

The Shanghai Composite trades at 18 times reported earnings, compared with a multiple of around 33 times at the start of 2010.

Global financial markets will face “renewed turbulence” as structural deficits and public debt in Europe and the U.S. hamper economic growth, Aberdeen Asset Management said.

Bank of China lost 2.3 percent to 3.47 yuan. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, slid 3.3 percent to 4.12 yuan.

Agricultural Bank set a price range for the Shanghai part of its initial public offering that will allow it to raise as much as $20.1 billion.

Share Sale

The Beijing-based bank may offer 22.2 billion shares in Shanghai at 2.52 yuan to 2.68 yuan apiece, it said yesterday. Agricultural Bank last week priced shares in the Hong Kong part of its IPO at HK$2.88 to HK$3.48 each.

Chinese banks will face a rise in bad loans that is unlikely to be big enough to cause “system-wide distress,” according to Moody’s Investors Service.

Real estate industry and local-government financing vehicles will be sources of bad loans, Yvonne Zhang, a China banking analyst at Moody’s at a conference in Shanghai. Economic growth and government policy are key to loan quality at China’s banks, she said.

Small Caps

The CSI Smallcap 500 Index, which trades at about 40 times reported earnings, slid 5.7 percent to 3,736.98, the lowest close since Oct. 16.

Jiangsu Yuyue Medical Equipment Co. declined 4.1 percent to 34.70 yuan, trimming its gain this year to 62 percent. Sanan Optoelectronics Co., a manufacturer of lighting emitting diode products, fell 2.6 percent to 41.77 yuan. The stock has surged 58 percent in 2010.

“The major problem with small-cap stocks is their high valuations,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “There’s no way they can hold such a high valuation amid the economic slowdown.”

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

Gemdale Corp. (600383 CH), a property developer, slumped 9.9 percent to 6.18 yuan. Zhao Hanzhong resigned as a senior vice president and a member of the company’s board for personal reasons, according to the company’s filing to Shanghai’s stock exchange.

Pingdingshan Tianan Coal Mining Co. (601666 CH), the listed unit of China’s fifth-largest producer of the coal, retreated 4.9 percent to 13.93 yuan, the lowest since April 2009. The company said eight people died in an accident at one of the company’s mines.

--Zhang Shidong, Chua Kong Ho. Editors: Richard Frost, Allen Wan

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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