China Stocks Decline Most in a Month on Europe, Economy Concerns

China’s stocks fell, dragging the benchmark index down the most in a month, after Standard & Poor’s cut the ratings of nine euro-region nations and before the release of economic data tomorrow.

China Cosco Holdings Co. (601919), the world’s largest operator of dry-bulk ships, paced losses by trade-related companies. Jiangxi Copper Co. (600362), China’s biggest producer of the metal, dropped 3.5 percent and PetroChina Co. slipped 1.1 percent after commodity prices retreated. Liquor maker Wuliangye Yibin Co. slid after the Xinhua News Agency said some of its products failed tests.

“The sovereign rating cuts in Europe will increase the borrowing costs of those countries and hamper their economic growth,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Tomorrow will show not-so-good economic data with GDP slowing, and that may indicate first- quarter figures will get uglier.”

The Shanghai Composite Index (SHCOMP) dropped 38.39 points, or 1.7 percent, to 2,206.19 at the close, capping a four-day, 3.5 percent decline. The CSI 300 Index slid 2 percent to 2,345.55. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 0.7 percent in New York at the end of last week.

China’s economy may have grown 8.7 percent in the last three months of 2011, the slowest pace in 10 quarters, according the median estimate of 26 economists in a Bloomberg survey. The data and indicators for investment, retail sales and industrial production, are due at 10 a.m. tomorrow.

Monetary Policy

The Shanghai Composite dropped 1.3 percent on Jan. 13 as speculation waned that the central bank would cut reserve ratios for banks before the Lunar New Year holidays next week. Credit Suisse Group AG and Royal Bank of Scotland Group Plc said inflation would hamper the government’s ability to ease monetary policy. The decline pared the index’s weekly advance to 3.8 percent, the first gain in two months.

China’s inflation may rebound because of rising wages, land costs and “imported” inflationary pressure, Ma Jiantang, head of the National Bureau of Statistics, wrote in a commentary published in Qiushi magazine.

The Shanghai index trades at 9 times estimated earnings, near the record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg. The measure is up 0.3 percent this year after plunging 22 percent in 2011. The central bank cut lenders’ reserve requirement ratios for the first time since 2008 on Nov. 30.

The MSCI Asia Pacific Index (MXAP) fell 1.2 percent today after S&P said France was cut to AA+ and the rating has a negative outlook. Cyprus, Italy, Portugal and Spain were lowered two grades while the long-term ratings on Austria, Malta, Slovakia and Slovenia were reduced one level, the ratings agency said.

Rating Cuts

Europe is China’s biggest export market, with about 18 percent of the Asian nation’s overseas shipments destined for the region, according to Shenyin & Wanguo Securities Co.

Shipping companies fell. China Cosco declined 2.2 percent to 4.38 yuan. China Shipping Container Lines Co., the country’s second-largest carrier of sea-cargo boxes, dropped 3.5 percent to 2.48 yuan, the biggest retreat since Nov. 30.

Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., said Greece is heading for default. S&P’s downgrade of European ratings shows countries can fail to meet their debt obligations, Gross said in a Twitter posting. Greece will prove to be the latest example, Gross wrote.

Earnings Concerns

Concerns over global growth also dragged commodity producers lower as metal and oil prices declined. Jiangxi Copper slid 3.5 percent to 22.61 yuan. Yunnan Copper Industry Co. (000878), China’s fourth-biggest producer of the metal, eased 2.9 percent to 16.25 yuan. PetroChina, the nation’s largest oil company, sank 1.1 percent to 10.09 yuan, the biggest decline in three weeks.

Copper for delivery in three months declined as much as 1.1 percent to $7,909.50 on the London Metal Exchange. The metal traded at $7,911.25 in Singapore. Crude slid to $98.70 a barrel in New York on Jan. 13, the lowest close since Dec. 21. Oil was up 0.6 percent today.

The yuan retreated 0.10 percent, the most since Jan. 6, to 6.3131 per dollar as of 3:26 p.m. in Shanghai, according to the China Foreign Exchange Trade System. The currency is allowed to trade 0.5 percent on either side of the daily fixing.

The yuan may depreciate about 2 percent against the dollar this year, Fan Jianping, chief economist at China’s State Information Center, said at a forum in Beijing on Jan. 14.

Test Failure

Wuliangye, China’s second-biggest maker of white liquor by market value, dropped 5.5 percent to 30.45 yuan. Some liquor made by the company failed tests conducted by the Guangdong Province Administration for Industry & Commerce on the strength of alcohol in the products, Xinhua reported yesterday, citing the administration. It didn’t provide further details.

The re-election of Taiwanese President Ma Ying-jeou over the weekend shows the island’s people have chosen to pursue “peace, development and stability,” a commentary on the website of the People’s Daily, the Chinese Communist Party’s main newspaper, said. Ma, the 61-year-old leader of the ruling Kuomintang Party, won a second four-year term as president after defeating Tsai Ing-wen, chairwoman of the Democratic Progressive Party, in Jan. 14 elections.

Chinese companies have started to announce annual earnings reports and will finish before the end of April. Thirteen companies in the Shanghai Composite have released annual profits for 2011 so far, with an average gain of 22 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

The China Securities Regulatory Commission is studying a plan to expand the so-called RQFII pilot program that allows offshore yuan to be invested in the country, the People’s Daily reported, citing an unidentified official from the commission. The CSRC is also studying allowing yuan-denominated A-share exchange-traded funds, the newspaper said.

--Zhang Shidong. Editors: Richard Frost, Chan Tien Hin

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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