Shanghai Index Declines, Paring Biggest Monthly Gain in a Year on Earnings

China’s stocks dropped, paring the benchmark index’s biggest monthly advance in a year, on concern recent gains were excessive relative to earnings prospects.

Yanzhou Coal Mining Co., the listed unit of China’s fourth- biggest coal miner, slumped 3 percent after cutting its earnings growth forecast. Northeast Securities Co. slid 1.2 percent after net income fell. Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, rose the most in more than four months after agreeing to buy a stake in Rio Tinto Group’s Simandou iron ore project in Guinea.

“This month’s rebound by stocks is running ahead of economic fundamentals and it’s still unknown if the government will relax tightening policies,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Disappointing earnings figures from some companies may lead to weak expectations about the second half of the year.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 10.61, or 0.4 percent, to 2,637.50 at the 3 p.m. close. The CSI 300 Index fell 0.3 percent to 2,868.85.

The Shanghai index rallied 10 percent in July, the most since July last year when it gained 15 percent, on expectations the government will ease property curbs and allow more lending to offset a slowdown in economic growth. The measure is still down 20 percent in 2010 on concern measures to control real- estate speculation and accelerating inflation will damp earnings.

Shanghai will announce tightening measures for the real estate market in the second half of the year, the Oriental Morning Post reported, citing Zhou Bo, head of Shanghai’s National Development and Reform Commission.

Corporate Earnings

Yanzhou Coal dropped 3 percent to 17.84 yuan, the most since July 1, after cutting its estimate for the likely increase in first-half profit to 35 percent, compared with an earlier estimated gain of more than 100 percent. The company said that fluctuations in the exchange rate of the Australian and U.S. dollars resulted in a loss on a loan.

Xishan Coal & Electricity Power Co. slid 3.4 percent to 21.45 yuan. The company’s earnings per share of 0.54 yuan in the first half is 17 percent less than the 0.65 yuan average estimate of three analysts surveyed by Bloomberg.

Northeast Securities retreated 1.2 percent to 24.11 yuan after net income for the first half fell 77 percent from a year earlier.

Beijing Bank Co. Chairman Yan Bingzhu said China may raise interest rates in the third quarter, the China Securities Journal reported today. The nation doesn’t have much room to increase reserve ratio requirements, the newspaper cited Yan as saying.

Interest Rates

China has left interest rates unchanged since December 2008, even as countries from Malaysia to Taiwan, South Korea and India lifted them. Trade reports from the region have indicated little sign so far that Europe’s budget cuts and U.S. joblessness are damaging exports.

People’s Bank of China officials said “that with a benign inflation outlook there was less need for higher nominal interest rates at this point,” the International Monetary Fund said in a statement yesterday after annual consultations with the Chinese government. “Also, they were concerned that higher interest rates could risk fueling capital inflows.”

Chalco Acquisition

Chalco, as the Beijing-based company is known, gained 6.7 percent to 10.89 yuan, the biggest increase since March 19. The stock was suspended for the past two days.

Separately, insurers may be allowed to invest 25 percent of their assets in A-shares, A-share funds, bond funds and money market funds, rising from the current 20 percent, the Shanghai Securities News reported today, without citing anyone.

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

China CAMC Engineering Co. (002051 CH) added 3.9 percent to 38.60 yuan after the China Securities Regulatory Commission approved the company’s private placement plan. The stock was suspended from July 27 to yesterday.

Sichuan Chuantou Energy Co. (600674 CH) lost 1.9 percent to 13.44 yuan after saying first-half profit fell 27 percent from a year earlier.

Sinochem International Corp. (600500 CH) added 1.9 percent to 10.17 yuan after posting a 77 percent increase in first-half profit.

Tianjin Benefo Tejing Electric Co. (600468 CH) advanced 1.5 percent to 20.09 yuan, its highest since it began trading in June 2001. The company plans to make equipment for China’s smart power grids as it raises funds through a private placement of 65 million shares to as many as 10 investors, Tianjin Benefo said.

Xinghui Auto Model Co. (300043 CH) rose 2.6 percent to 42.45 yuan after the Chinese company reached an agreement with Bayerische Motoren Werke AG to produce models of BMW 6 series cars.

--Zhang Shidong. 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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