Unicom Leads Chinese Slump as PMI Signals Contraction

Chinese equities fell to the lowest level in a week in New York, led by telecommunication companies, after a manufacturing index (HSCEI) signaled production may contract for an 11th month.

The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. sank 1.6 percent to 91.27 yesterday. China Unicom (Hong Kong) Ltd. (CHU) plunged the most in three months and China Telecom Corp. retreated after the two operators reported slower growth in mobile users in August. Macau Casino operator Melco Crown Entertainment Ltd. (MPEL) traded at the widest discount to its Hong Kong stock in eight weeks following Las Vegas Sands Corp. (LVS)’s plans to add a fifth resort in the city.

The preliminary reading for a China purchasing managers’ index by HSBC Holdings Plc and Markit Economics was 47.8. If confirmed, the gauge will post its longest streak below the expansion-contraction dividing line of 50 in the survey’s eight- year history. Third-quarter growth for the world’s second- largest economy may slow to 7.4 percent from 7.6 percent in the previous three months, according to the median estimate of 23 economists surveyed by Bloomberg.

“The performance of Chinese stocks reflects a weak outlook for the Chinese economy,” Qinwei Wang, an economist at Capital Economics Ltd., said by phone yesterday from London. “Not only this HSBC PMI, but many other figures came out disappointing us over the past few months. Economists have been reducing their growth projections this year.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., tumbled 1.6 percent to $34.52, the biggest decline in eight days. Most U.S. stocks fell yesterday while the Standard & Poor’s 500 Index (SPX) was little changed at 1,460.26 as data from Japan and Europe also indicated that a global economic slowdown is worsening.

Capital Economics’ Forecast

Capital Economics lowered its forecast for China’s 2012 economic expansion to 7.6 percent, from 8 percent at the beginning of the year, Wang said, adding the real growth rate may turn out to be slower than the government’s final headline figure, at about 7 percent. “However, stocks still have a chance to see a mild rebound by year-end,” he said.

American depositary receipts of China Unicom sank 4.4 percent to $16.25, the biggest drop since June 21. Unicom, China’s second-largest wireless carrier, added 3.4 million mobile subscribers in August, from 3.41 million in July, it said Sept. 19 on its website. Total users of its services increased 3.9 million last month, from 4.2 million in July.

China Telecom, which operates the third-biggest wireless network in the country, dropped 2.1 percent to $58.98. China Mobile Ltd. (941) retreated 0.9 percent to $54.49.

Melco Crown Drops

China Telecom added 2.5 million mobile subscribers in August, from a net addition of 2.7 million in the prior month, according to figures it reported yesterday. That was the slowest growth since February 2011.

The Chinese economy is going to have a “hard landing,” hit by its over-reliance on exports and monetary tightening measures taken in 2010 and 2011, said Gary Shilling, president of A. Gary Shilling & Co., in an interview with Bloomberg Television yesterday.

Melco Crown’s ADRs slid 3.4 percent to $12.8, the biggest loss since July 24. The receipts, each representing three shares in the company, traded 4.1 percent lower than its Hong Kong stock, the widest discount since July 23.

Sands, one of Melco’s competitors in Macau, the only city in China where casinos are legal, plans to invest at least $2.5 billion to build the new casino complex, with $1.5 billion in bank loans, Sands Chief Operating Officer Michael Leven said at a press briefing yesterday in the city.

Dangdang, Ctrip Slide

E-Commerce China Dangdang Inc. (DANG), China’s largest online book retailer, sank 5.7 percent to $5.14, the steepest slump in two months. Online travel agency Ctrip.com International Ltd. (CTRP) retreated 4.7 percent to a three-week low of $17.70, after jumping 5.6 percent the previous day.

ADRs of China Life Insurance Co. (LFC), the nation’s biggest insurer, dropped 1.7 percent to a one-week low of $43.43. Yanzhou Coal Mining Co. fell 2.3 percent to $15.18.

The two are among 49 dual-listed Chinese companies found by the nation’s regulators to have internal control problems. China Life had defects in managing its sales force and evaluating software needs, the Finance Ministry and the China Securities Regulatory Commission said in a joint statement yesterday.

Due Diligence

Yanzhou failed to conduct due diligence on some investment projects, while its internal accounting department lacks adequate staffing and information technology, the ministry and the commission said in the statement.

The Shanghai Composite Index (SHCOMP) lost 2.1 percent yesterday to 2,024.84, the lowest level since February 2009. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong slid 1.4 percent, the most in two weeks, to 9,707.91.

“Growth has been weaker and for longer than we would have expected,” Joseph Tanious, a strategist at JPMorgan Funds who helps oversee $394 billion, said yesterday by phone from New York. “Yet we’re optimistic that growth will pick up in the first quarter of 2013 as a result of further fiscal and monetary easing, and that Chinese stocks, which have been out of favor, are likely to follow.”

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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