China’s stocks fell, with the Shanghai Composite Index briefly sliding below the 2,000 level for the first time in three years, on concern the deepening economic slowdown is hurting corporate profits.
The Shanghai Composite dropped 1.2 percent to 2,004.17 at the close, after slumping to as low as 1,999.48 in the last five minutes of trading. The benchmark gauge has lost 9.9 percent this quarter, the most in a year, and is the worst performer among global markets after Cyprus. The CSI 300 Index (SHSZ300) slipped 1.1 percent to 2,184.89, led by metal producers.
“The market has no confidence in China’s old growth model of investment and exports any more,” said Wang Zheng, Shanghai- based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “With the two growth drivers fading, we haven’t found a new engine. That’s why stocks are performing so poorly.”
China Vanke Co. (000002) and Poly Real Estate Group Co., the nation’s biggest developers, dropped at least 1.4 percent on earnings concerns after the southern city of Guangzhou restricted sales of homes before they are completed. BYD Co. (002594), the automaker part-owned by Warren Buffett’s Berkshire Hathaway Inc., slid to a record low after CLSA Asia Pacific Markets cut its share-price estimate of the company’s Hong Kong-listed shares by 94 percent.
About 5 billion shares changed hands today on the Shanghai gauge, 35 percent lower than the daily average this year. China’s markets will be closed next week for national holidays. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong retreated 1.3 percent today. The Bloomberg China-US 55 Index (CH55BN) fell 0.9 percent in New York yesterday.
The Shanghai index has lost 8.9 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. It’s valued at 9.3 times estimated earnings, compared with the average of 18 since Bloomberg began compiling the weekly data in 2006.
China’s stocks have fallen because of “low” investor confidence, share oversupply and concerns about corporate governance, Dennis Lim, who helps manage $48 billion of emerging-market funds at Templeton Asset Management Ltd., said in an interview from Singapore yesterday.
China’s dispute with Japan over contested islands in the East China Sea, the effect of Europe’s debt crisis on China exports and policy uncertainty before a change of leadership later this year have also hurt investor sentiment.
“It’s all sentiment,” Lim said. “The good news, is when the rebound comes, the rebound can be very sharp and strong. It’s a function of investor sentiment. If the government can show the local population, ‘look, everything is under control, we know what’s happening. We are addressing the problems.’ It could happen very quickly.”
China’s statistics bureau is due to release August industrial companies’ profits tomorrow. Profits fell 5.4 percent from a year earlier in July, the most this year.
A measure of 24 property stocks in the Shanghai Composite (SHCOMP) dropped 1.1 percent, the first decline in four days. Vanke, the nation’s biggest listed property developer, fell 1.5 percent to 7.79 yuan. Poly Real Estate, the second largest, lost 1.4 percent to 10.03 yuan. China Merchants Property Development Co. retreated 1.4 percent to 19.51 yuan.
Guangzhou limited pre-sale of some housing projects with “excessive high prices,” the local land resources and housing management bureau said in its Twitter-like official weibo.
The nation’s two-year effort to curb a real-estate bubble has 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.
‘Few Positive Catalysts’
BYD sank 5.4 percent to 13.99 yuan, its lowest close since its listing in June last year. Its Hong Kong-listed shares tumbled 9.3 percent. CLSA lowered its 12-month price goal for BYD’s Hong Kong-traded shares to HK$0.41, from a previous estimate of HK$7.40.
“The company will likely deteriorate further due to declining business in mobile phone components, rechargeable batteries and new energy,” Scott Laprise, a Beijing-based analyst at CLSA, wrote in a research note yesterday. “We see few positive catalysts going forward and maintain our conviction” to sell the stock, Laprise wrote.
The ChiNext index of start-up companies tumbled 3.1 percent to 661.49 in Shenzhen today, the lowest close since Feb. 1, on concern founding shareholders will sell shares once their stock lock-up periods expire next month.
Major shareholders of 28 ChiNext companies will be able to sell their shares on the secondary market at the end of October after a three-year lock-up period, according to a report by China Finance Information. The number of such companies will rise to 52 by the end of the year, it said.
The People’s Bank of China reiterated that it will pursue prudent monetary policy and guide stable and moderate increase of credit, the central bank said in a statement yesterday following a quarterly meeting of its monetary policy committee.
The government has expedited approvals of infrastructure projects and cut borrowing costs and reserve-requirement ratios twice respectively this year to counter a slowdown in economic growth, which has decelerated for six quarters.
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