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China’s Stocks Fall to Lowest Since March 2009 on Profit Concern

China’s stocks fell, dragging down the benchmark index to the lowest level since March 2009, after companies from Maanshan Iron & Steel (323) Co. to Shanxi Coal International Energy Group Co. reported weaker earnings.

Maanshan Iron dropped to a 16-year low, while Shanxi Coal sank 6 percent as Shenyin & Wanguo Securities cut the company’s earnings estimates. Gemdale Corp. tumbled to a seven-month low after the official Xinhua News Agency reported the government is studying further measures to control the property market.

The Shanghai Composite declined 1 percent to 2,092.10 at the close, the lowest since March 3, 2009. The CSI 300 Index (SHSZ300) lost 1.2 percent to 2,275.68. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong fell 1.8 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 0.2 percent in New York.

“The market’s volatile with weak first-half earnings and property concerns dragging the market,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which manages the equivalent of $2.2 billion.

The Shanghai Composite (SHCOMP) has retreated 1.1 percent this week after a report from HSBC Holdings Plc and Markit Economics showed manufacturing may be contracting at a faster pace this month. The index has fallen 4.9 percent this year, dragging down estimated earnings to 9.4 times, compared with the average of 17.5 since Bloomberg began compiling the data in 2006.

Earnings Concerns

The manufacturing data signal more monetary and fiscal stimulus may be needed to secure a second-half rebound in economic and earnings growth. Policy makers lowered interest rates in June and July after two reductions in reserve- requirement ratios for lenders this year as the economy expanded at the slowest pace since 2009.

China’s non-financial publicly traded companies that have already released first-half earnings posted a 7.8 percent drop in profits, compared with a 4.5 percent decline in the first quarter, Li Peng, analyst at Shenyin & Wanguo, said yesterday.

Maanshan Iron retreated 1 percent to 1.96 yuan, the lowest close since Feb. 14, 1996. The company’s first-half net loss was 1.9 billion yuan, compared with net income of 310 million yuan a year ago.

Shanxi Coal tumbled 5.5 percent to 20.12 yuan, the lowest close since Aug. 12, 2010. The company’s first-half net income fell 4.2 percent from a year earlier. Its 2012 earnings-per- share estimate was also cut by 13 percent to 1.45 yuan at Shenyin & Wanguo. China Shenhua Energy Co., the nation’s biggest coal producer, slid 1.7 percent to 21.93 yuan.

Data Questioned

China may have overstated 2012 industrial production data to mask the economy’s weakness, Federal Reserve Bank of Dallas economists Janet Koech and Jian Wang wrote in a paper. The country’s industrial electricity consumption suggests industrial production growth may be less than official government data stated.

HSBC Holdings reduced its 2012 growth forecast for China to 8 percent from 8.4 percent. Recent data suggest China is facing “global headwinds” that are much stronger than expected, economists led by Qu Hongbin wrote in a report today.

People’s Bank of China Governor Zhou Xiaochuan said the country still faces relatively big pressure on economic growth, the Financial News reported, citing Zhou speaking at a meeting on Aug. 22. The international situation is still “grim,” Financial News cited him as saying.

Property Curbs

Gemdale Corp. slid 1 percent to 4.98 yuan, the lowest close since Jan. 6. A gauge of property stocks in the Shanghai Composite has fallen 4.2 percent this week, the most among five industry groups.

The government is “closely monitoring” changes in the real estate market and has ordered local governments not to relax property controls, the unidentified official with China’s Ministry of Housing and Urban-Rural Development was quoted as saying in the Xinhua report.

The nation’s two-year effort to curb a real-estate bubble included imposing a property tax for the first time in Shanghai and Chongqing, raising down-payment and mortgage requirements, increasing building of low-cost social housing and placing home purchase restrictions in about 40 cities. China’s prices of new homes rose in the largest number of cities in 14 months in July.

Thirty-day volatility on the Shanghai gauge was at 11.1 yesterday, compared with this year’s average of 17.3. About 5.9 billion shares changed hands in the gauge, 21 percent lower than the average volume this year.

The MSCI Asia Pacific Index fell 1.3 percent amid concern that European leaders aren’t making progress in solving the region’s debt crisis, curbing the earnings outlook for exporters.

German Chancellor Angela Merkel said Europe is in one of its deepest crises, and while the path to a solution is “arduous,” the euro region will emerge stronger.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dipped 0.2 percent to a three- week low of $34.20.

To contact the reporters 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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