Most Chinese Stocks Fall, Led by Health-Care, Consumer

Most Chinese stocks fell before the release of industrial production and inflation data tomorrow as speculation mounted the government will take steps to support equities.

Kangmei Pharmaceutical Co. (600518) and Wuliangye Yibin Co. (000858) dropped at least 1.5 percent, leading declines by health-care and consumer-staple companies, the CSI 300 Index (SHSZ300)’s best performers in the past six months. Hong Yuan Securities Co. climbed 1.8 percent, pacing gains among brokerages, after the Securities Times reported funding for margin trading may be expanded. Xiamen Tungsten Co. (600549) jumped 10 percent after saying it will accelerate the development of its rare-earth business.

Two stocks declined for each one that rose in the Shanghai Composite Index (SHCOMP), which advanced 0.2 percent to 2,160.99 at the close today. The gauge turned between gains and losses at least 17 times today. Data tomorrow will probably show industrial production rose 9.7 percent last month from a year earlier, compared with June’s 9.5 percent increase, according to an economist survey by Bloomberg News. Consumer inflation probably decelerated to 1.7 percent in July, the weakest pace since January 2010.

“Investors are more cautious before the data,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “There’s still a lack of confidence in the market, something that we cannot reverse until there’s a major catalyst for the economy to rise.”

Speculation global central banks will take steps to boost economic growth mounted after Federal Reserve Bank of Boston President Eric Rosengren said yesterday the institution should pursue an “open-ended” easing program of “substantial magnitude.” German Chancellor Angela Merkel on Aug. 6 backed European Central Bank President Mario Draghi’s bond-buying plan.

Volatility

The CSI 300 Index added less than 0.1 percent to 2,389.79. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong advanced 0.1 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.6 percent in New York yesterday.

Thirty-day volatility in the Shanghai index was at 14.1. Trading volumes of shares in the gauge were 26 percent higher than the average in the past 10 days, according to data compiled by Bloomberg.

The Shanghai Composite has tumbled 12 percent from this year’s high on March 2 amid concern the economic slowdown is deepening. The index is valued at 9.6 times estimated profit, compared with the three-year average of 17.3, according to data compiled by Bloomberg.

Expensive Valuations

A gauge of health-care stocks in the CSI 300 lost 1.5 percent, while the measure of consumer staples dropped 0.5 percent. The two sub-indexes climbed at least 9.8 percent in the past six months, the only advances among the CSI 300’s 10 industry groups.

Kangmei Pharmaceutical, a medicine producer, declined 4.2 percent to 15.12 yuan, the most since April 26. Guangxi Wuzhou Zhongheng Group Co. (600252), a Chinese medicine maker, retreated 3.8 percent to 11.77 yuan. Valuations for health-care stocks are expensive compared to other shares after the recent surge, said Li Ying, analyst at Capital Securities Corp. by telephone. The CSI 300 trades for 10.5 times estimated profit, about half the health-care index’s 20.8 multiple.

The CSI 300’s consumer-staples measure is valued at 18.6 times earnings. Wuliangye Yibin Co., China’s second-largest maker of white liquor by market value, dropped 1.5 percent to 36.05 yuan. Chongqing Brewery Co. (600132), part-owned by Carlsberg A/S, lost 1.4 percent to 18.89 yuan. Yonghui Superstores Co., a supermarket operator in the southeast province of Fujian, retreated 2.2 percent to 22.20 yuan.

Margin Trading

Hong Yuan rose 1.8 percent to 19.12 yuan, while Haitong Securities Co. (600837) advanced 0.3 percent to 9.84 yuan. Guoyuan Securities Co. jumped 2.5 percent to 11.34 yuan.

China Securities Finance Corp. increased its registered capital to 12 billion yuan ($1.9 billion) from 7.5 billion yuan, enabling it to lend as much as 120 billion yuan to domestic brokerages for margin trading and short-selling services, the Securities Times reported today, citing an unidentified official. More than 10 brokerages may start margin trading and short-selling services under a trial program, it said.

Chinese publicly traded companies are required to release first-half earnings results in July and August. Of the 886 companies in the Shanghai Composite, the 132 that reported second-quarter earnings had an average 1.4 percent profit decline, according to data compiled by Bloomberg. Profit rose 2.8 percent in the first quarter, the data showed.

‘High Expectations’

The People’s Bank of China has cut interest rates twice since early June and lowered lenders’ reserve requirements as the world’s second-largest economy seeks to stem the slowest growth in three years.

“Tomorrow’s data would probably show economic growth has stabilized but hasn’t picked up yet,’ said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. ‘‘Investors have high expectations that the government will do something to support the market such as a cut in the reserve requirement ratio or suspension of new share sales.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose 0.6 percent to $35.19 yesterday, its third day of gains.

--Zhang Shidong. With assistance from Leon Lazaroff in New York. Editors: Darren Boey, Richard Frost

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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