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China’s Stocks Drop Most in a Week on Concerns About Economy

China’s stocks fell, dragging down the benchmark index by the most in a week, on concern the economic slowdown is deepening after auto sales missed analysts’ estimates and Macquarie Group Ltd. (MQG) cut its growth estimates.

Anhui Conch Cement Co. (600585) and Sany Heavy Industry Co. led declines for infrastructure-related companies on speculation the shares are overvalued after both companies rallied 16 percent in three days. FAW Car Co., which makes passenger cars in China with Volkswagen AG, sank 2 percent after passenger-vehicle sales trailed analysts’ estimates for a second month in August and the government increased gasoline and diesel prices for the second time in about a month.

The Shanghai Composite Index (SHCOMP) dropped 0.7 percent to 2,120.55 at the close. The CSI 300 Index (SHSZ300) lost 0.6 percent to 2,311.89. The Shanghai gauge had rallied 4.8 percent over the past three days after the nation’s top planning body approved new roads, railways and urban infrastructure.

“The market needs a break here and investors want to see how the government will implement these announced infrastructure investments,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Investors will also gauge if these measures will be effective in halting the decline in economic growth.”

The Shanghai Composite has dropped 3.6 percent this year on concern the government isn’t loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. The index is valued at 9.7 times estimated earnings, compared with the 17.4 average since Bloomberg began compiling the weekly data in 2006.

Xi’s Absence

Vice President Xi Jinping’s absence for more than a week from public events fueled speculation about the health of the leading candidate to succeed President Hu Jintao in a once-in-a- decade leadership change. Secrecy surrounding China’s leadership, combined with the ouster of Politburo member Bo Xilai, have left investors with limited information on who’ll be overseeing the world’s second-biggest economy.

Anhui Conch, China’s biggest cement maker, slid 3.1 percent to 14.98 yuan. It had jumped 16 percent over the past three days. Sany Heavy, the largest Chinese machinery maker, lost 1.5 percent to 10.07 yuan after surging 16 percent over the past three days.

Gansu Qilianshan Cement Group Co. (600720) sank 2.7 percent to 11.31 yuan. Citic Heavy Industries Co., the heavy machinery unit of China’s largest conglomerate, retreated 2 percent to 3.94 yuan.

Construction Stocks

Construction-related stocks had rallied over the past week as China approved plans to build 2,018 kilometers (1,254 miles) of roads. A plan to build highways, sewage-treatment plants and other projects came after the National Development & Reform Commission, the country’s top economic planner, backed subway projects in 18 cities. The measures are efforts to ensure that China’s economic slowdown doesn’t worsen.

Further fixed-asset stimulus will only postpone China’s problems, Bill Smead, chief executive officer of Smead Capital Management, said in a Bloomberg Television interview.

Data released yesterday and over the weekend showed industrial output grew at the slowest pace in three years and imports and exports missed analysts’ estimates, increasing bets that the government will increase fiscal or monetary stimulus.

China’s new local-currency loans were 703.9 billion yuan ($111 billion) in August, the People’s Bank of China said on its website today.

New loans compare with the median estimate of 600 billion yuan in a Bloomberg News survey of 32 analysts. The figure was 540.1 billion yuan in July and 548.5 billion yuan a year earlier.

Growth Outlook

Macquarie cut its 2012 growth forecast for China to 7.7 percent from 8.1 percent, saying it sees the slowdown continuing into the third quarter and limited room for monetary expansion next year amid inflationary pressure.

Banks and brokerages including Barclays Plc, JPMorgan Chase & Co., Nomura Holdings Inc. and Daiwa Securities Group Inc. have cut forecasts for China’s 2012 growth this week.

FAW Car sank 2 percent to 7.30 yuan. Beiqi Foton Motor Co., the biggest commercial-vehicle maker, declined 0.9 percent to 6.43 yuan. Guangzhou Automobile Group Co. (601238) lost 2.3 percent to 5.94 yuan.

Wholesale deliveries, including multipurpose and sport utility vehicles, gained 11 percent to 1.22 million units last month, the China Association of Automobile Manufacturers said in a statement yesterday. That compares with the 1.24 million mean estimates of 14 analysts surveyed by Bloomberg.

Gasoline Price Increase

The maximum at which gasoline can be sold to motorists rose by 550 yuan ($87) a metric ton and diesel by 540 yuan today, the National Development and Reform Commission said in a statement on its website yesterday.

Citigroup Inc. (C) said it expects a “bumpy rebound” for Chinese stocks as policy “visibility” improves steadily before the nation’s 18th party congress. Valuations also make equities attractive, analysts Minggao Shen and Ben Wei wrote in a note dated yesterday.

Investors should stay defensive on China’s stocks, Heather Hsu, head of China A-Share research at Fortune-CLSA, said at a press briefing in Hong Kong yesterday. Earnings for Chinese companies in the third quarter may be worse than the previous quarter, she said.

About 59 percent of Shanghai Composite companies missed earnings estimates in the second quarter, while 41 percent beat, according to data on 241 profit results compiled by Bloomberg.

Thirty-day volatility in the Shanghai Composite was at 16.2 today, compared with this year’s average of 17. About 8 billion shares changed hands in the gauge yesterday, 2.6 percent higher than the daily average this year.

The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong slid 0.2 percent today. The Bloomberg China- US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, fell 1 percent in New York yesterday.

--Zhang Shidong. Editors: Allen Wan, 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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