China’s Stocks Drop to 2009 Low as Air China Profit Falls

China’s stocks fell, dragging the benchmark index to its lowest level in more than three years, after companies from Air China Ltd. (601111) to Zhongjin Gold Co. reported a decline in first-half profits.

Air China, the nation’s largest international carrier, sank to its lowest level since March 2009, while Zhongjin Gold, the third-largest bullion producer by market value, retreated 2.3 percent. FAW Car Co. (000800), which makes passenger cars with Volkswagen AG, declined for a seventh day as the company reported a six- month loss. Shanghai Chaori Solar Energy Science & Technology Co. rose 6.4 percent after Japan imported more solar products.

“Third-quarter earnings could also be ugly as the economy tries to find a bottom,” said Li Jun, a strategist at Central China Securities Co. in Shanghai.

The Shanghai Composite Index (SHCOMP) slid 1 percent to 2,053.24 at the close, the lowest level since Feb. 2, 2009, and wiping out yesterday’s gain that was the biggest in three weeks. The CSI 300 Index (SHSZ300) retreated 1.1 percent to 2,214.81. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong dropped 0.3 percent.

Signs China’s economic slowdown is deepening have dragged the Shanghai Composite down 7.7 percent this quarter, the worst performer in the world after Cyprus among 93 stock markets tracked by Bloomberg. The gauge is valued at 9.3 times estimated earnings, compared with an average multiple of 17.1 for the past five years, according to data tracked by Bloomberg.

The Shanghai index rebounded 0.9 percent yesterday after Baoshan Iron & Steel Co. (600019) said it plans to purchase its own shares, spurring speculation more state-owned companies will follow suit. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 0.5 percent in New York yesterday.

Earnings Slump

Air China retreated 1.8 percent to 4.80 yuan. The carrier said net income slumped 77 percent from a year earlier in the first six months because of slowing travel demand, higher fuel costs and a loss from its stake in Cathay Pacific Airways Ltd.

Zhongjin Gold slid 2.3 percent to 14.74 yuan, the most since July 9, after the company said first-half profit fell 3.1 percent.

FAW Car lost 2.9 percent to 7.75 yuan, capping a seven-day, 18 percent plunge. The company said it posted a loss of 61.4 million yuan ($9.67 million) in the first half.

China’s gross domestic product expanded 7.6 percent last quarter, the slowest pace in three years, as Europe’s debt crisis hurt exports and Premier Wen Jiabao’s campaign to cool consumer and property prices damped domestic demand. Bank of America Corp. estimates a further slowdown to 7.4 percent in the three months through September.

Store Sales

Retailers from clothing to computers are reporting weaker sales growth. Passenger-vehicle sales trailed analysts’ estimates in July. Sportswear seller Li Ning Co. shut 1,200 stores in the first half and department-store chain Parkson Retail Group Ltd. (3368)’s same-store sales rose at less than a quarter the pace of a year earlier. Gome Electrical Appliances Holding Ltd. said it would report a first-half loss on lower sales.

Slowing sales growth at retailers show an extra drag on the second-largest economy after export growth almost stalled in July and factory output missed forecasts.

At the same time, the country may slow the pace of monetary policy loosening in the third quarter on concern inflation and home prices may rebound, the official Xinhua News Agency reported yesterday, citing Lian Ping, chief economist at Bank of Communications Ltd., and Peng Wensheng, chief economist at China International Capital Corp.

The People’s Bank of China cut interest rates in June and July for the first time since 2008 and has lowered banks’ reserve requirements three times starting in November.

Japan’s Imports

Chinese solar stocks advanced after the Japan Photovoltaic Energy Association said yesterday the nation’s imports of solar cells and modules more than tripled in the second quarter.

Shanghai Chaori surged 6.4 percent to 5.53 yuan after jumping by the 10 percent daily limit yesterday. EGing Photovoltaic Technology Co. (600537) rose 2 percent to 9.24 yuan. Jiangsu Akcome Solar Science & Technology Co. climbed the maximum 10 percent to 6.50 yuan.

Thirty-day volatility in the Shanghai Composite was at 12.3 today, compared with this year’s average of 17.2. About 5.2 billion shares changed hands in the gauge today, 33 percent lower than the daily average this year.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.3 percent to $33.61 yesterday, snapping a nine-day slump.

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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