China’s Stocks Fall Most in Asia on IPO, Economic Slowdown Risks

China’s stocks fell, dragging the benchmark index down by the most among Asian indexes, on concern the nation’s economic slowdown is deepening and a possible jump in initial public offerings will drain capital.

Jiangxi Copper Co. and China Shenhua Energy Co. led declines for copper and coal producers after a state economist said the slowdown isn’t over yet as loan demand falls. SAIC Motor Corp., China’s largest carmaker, dropped to the lowest in two months after the biggest auto-dealer association said the worsening glut of vehicles in dealerships is unsustainable. Seven “large” initial public offerings in the second half of the year are expected to absorb market capital, China Finance Information reported today.

“I’ve heard about the IPO speculation,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “It’s not just listings, but the fact that they are big IPOs. This definitely dragged stocks down today.”

The Shanghai Composite Index (SHCOMP) lost 16.4 points, or 0.7 percent, to 2,293.13 at the close, adding to a 3.4 percent loss this week. The CSI 300 Index (SHSZ300) slid 0.6 percent to 2,542.18. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, rose 2.7 percent at the close.

The Shanghai Composite has gained 4.3 percent on speculation the government will cut interest rates and increase infrastructure spending to bolster growth. Stocks in the measure are valued at 9.9 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Economic Data

Fixed-asset investment probably expanded at the slowest pace in a decade in May, inflation matched a two-year low and industrial output grew less than 10 percent for a second month, Bloomberg economist surveys are expected to show this weekend.

China’s economic slowdown is not over yet as demand for medium- and long-term loans is decreasing, Fan Jianping, chief economist at the government-run State Information Center, said at a conference in Hangzhou today. The economy grew 8.1 percent in the first quarter, the least since the three months ending June 30, 2009.

Jiangxi Copper retreated 1.2 percent to 24.71 yuan. Yanzhou Coal Mining Co. dropped 1.4 percent to 21.16 yuan. China Shenhua fell 0.8 percent to 24.83 yuan.

The seven large IPOs may drain about 77.1 billion yuan of capital from the A-share market, China Finance Information reported today, citing its own calculations. Approved fund raising plans may drain about 56.3 billion yuan from the market, it said.

Sinohydro Group Ltd. fell 1.3 percent to 4.45 yuan. The shares of the largest builder of hydroelectric dams have dropped 1.1 percent they started trading last October.

IPO Outlook

China National Nuclear Power Co. on June 5 won the environment ministry’s permission to sell shares to fund 174 billion yuan of projects in the nation’s first IPO by a developer of atomic energy. The company may need to raise about 50 billion yuan from the share sale, Macquarie Group Ltd. said. China Postal Express & Logistics Co., the nation’s biggest courier company, won IPO approval in May.

SAIC led declines for automakers, losing 1.8 percent to 14.55 yuan. Average inventory carried at Chinese dealerships bloated to a level exceeding two months of sales by the end of May, compared with more than 45 days at the end of April, Luo Lei, deputy secretary general of the state-backed China Automobile Dealers Association, said in an interview yesterday. That’s forcing dealers to deepen discounts and sell cars at a loss to meet mandatory sales targets set by automakers, he said.

Low Confidence

“Confidence is quite low as there are worries about the economy, liquidity is too low to push stocks up for long and company earnings remain weak,” Zhang Qi, an analyst at Haitong Securities Co., said in a telephone interview in Shanghai. “Now we are just waiting for an interest-rate cut. The central bank may do so in the next two months at the earliest.”

China last reduced borrowing costs in 2008. The central bank cut lenders’ reserve requirments three times since November.

Bank stocks fell even after the government delayed the start of tighter capital rules. New draft rules from the China Banking Regulatory Commission aim to set “reasonable” schedules for banks to meet capital targets in a way that helps “maintain appropriate credit growth,” the government said on its website yesterday. The rules, announced in August, had been set to go into effect on Jan. 1, 2012.

Bank of Communications Co. decreased 0.9 percent to 4.56 yuan. Industrial Bank Co. retreated 0.8 percent to 13.06 yuan.

China cutting interest rates would be a “wrong move” as it would cause banks to lose deposits that could be used to support economic growth as well as lower their net interest margins, 21st Century Business Herald said today in an editorial.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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