China’s Stocks Fall Most in Almost 4 Weeks on Economic Outlook

China’s stocks fell, dragging the benchmark index down by the most in almost four weeks, on concern the nation’s economic and earnings outlook is worsening before a report on manufacturing scheduled for tomorrow.

Anhui Conch Cement Co. (600585), which releases its third-quarter earnings tomorrow, slid 4 percent after KGI Securities said demand growth is limited and cement price gains in eastern China are nearing an end. Shenzhen Hongtao Decoration Co. (002325) tumbled 10 percent after the company cut its earnings forecast. Foreign buyers attending the Canton trade fair declined 11.4 percent from the spring session, the China Daily reported, while Citigroup Inc. cut its 2012 economic growth estimates for China.

The Shanghai Composite Index (SHCOMP) fell 0.9 percent to 2,114.45 at the close, its biggest loss since Sept. 26. The CSI 300 (SHSZ300) dropped 1.3 percent to 2,312.08. Hong Kong’s stock market was shut for a holiday. The Bloomberg China-US 55 Index (CH55BN) added 1.2 percent in New York yesterday.

“We’re not certain the economic recovery can carry on,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Looking ahead, there isn’t any positive news flow that investors can use as an excuse to buy stocks.”

The Shanghai Composite had rebounded 5.5 percent since reaching a three-year low on Sept. 26 on expectations regulators will introduce measures to stabilize the market ahead of a once- in-a-decade power transition of the Communist Party. The Shanghai gauge is still down 3.9 percent this year and trades at 9.9 times estimated earnings for this year, compared with the 17.8 average since Bloomberg began compiling the weekly data in 2006.

Flash PMI

HSBC Holdings Plc and Markit Economics are due to release a preliminary reading of China’s October manufacturing index tomorrow. The purchasing managers’ index was at 47.9 in September, contracting for an 11th straight month.

Citigroup cut China’s growth forecast for this year to 7.7 percent from 7.9 percent, Shuang Ding, Minggao Shen and Serena Wang, analysts at the U.S. bank, wrote in a report dated Oct. 19. Fourth-quarter growth may rebound to 7.8 percent, according to the report.

Foreign buyers attending the bi-annual Canton trade fair declined 11.4 percent from the spring session during the first four days, the China Daily reported, citing statistics from the event organizers. Transaction values for machinery and electronics goods fell 23.1 percent with Europe and dropped 0.1 percent with Africa, the newspaper said.

Anhui Conch, China’s biggest cement maker, retreated 4 percent to 16.24 yuan. Demand growth is limited and cement price gains in eastern China are nearing an end, according to a report by KGI Securities dated yesterday. KGI forecasts “flat” eastern China cement prices in the first half of 2013.

Slumping Profits

The company is expected to report 0.26 yuan earnings per share for the third quarter, down 54 percent from a year earlier, according to data compiled by Bloomberg.

Chinese industrial companies’ profits dropped 6.2 percent in August from a year earlier, the largest decline this year and the fifth straight monthly deceleration, a statistics bureau report showed last month. Data for September are due Oct. 27.

Shenzhen Hongtao plunged by the daily limit of 10 percent to 16.68 yuan. Profit probably rose between 30 percent and 50 percent from a year earlier in the first nine months, the company said in a statement yesterday. That compared with an August forecast of a gain of between 60 percent 90 percent. Revenue was lower than expected because of slowing progress in big projects, according to the statement.

Deflationary Pressure

Shanxi Coking Co. (600740), the largest publicly traded coke producer in China, lost 1.2 percent to 8.63 yuan after third- quarter profit dropped 74 percent from a year earlier.

About 10 percent of the 934 companies in the Shanghai Composite have announced third-quarter earnings, according to data compiled by Bloomberg. Listed companies are required to release third-quarter reports by the end of the month.

Chinese factories are losing pricing power in the worst wholesale-cost deflation since 2009, signaling corporate earnings may deteriorate further and putting a damper on global inflation pressures.

Steelmaker China Oriental Group Co. (581) says falling prices are wiping out profits, while Yunnan Copper Industry Co. (000878) cited the declines for a third-quarter loss. The producer-price index fell 3.6 percent in September from a year earlier and may stay negative until the second half of 2013 without large stimulus, according to Mizuho Securities Asia Ltd.

CSRC Measures

Last month’s 3.6 percent drop in wholesale prices from a year earlier was the seventh straight decline and biggest since October 2009. The decline was caused primarily by weak demand and also by overcapacity, Sheng Laiyun, spokesman for the National Bureau of Statistics, said at a press briefing Oct. 18.

Train-related stocks rose after the Economic Information Daily reported China added 13 railway infrastructure projects to this year’s construction investment plans.

CSR Corp. (601766), the nation’s biggest train maker, advanced 1.2 percent to 4.34 yuan. China CNR Corp., the second largest, added 0.8 percent to 3.88 yuan.

The China Securities Regulatory Commission is studying measures to further lower trading costs for investors, Chairman Guo Shuqing wrote in an article published in Administration Reform, a magazine published by the Chinese Academy of Governance. There were no further details.

This year, the CSRC has expedited approvals of foreign investors, cut stock-trading fees by 25 percent and called on listed companies to pay more dividends as part of efforts to boost the market. The People’s Bank of China has cut interest rates twice since early June and lowered lenders’ reserve requirement ratios three times from last November.

Thirty-day volatility in the Shanghai Composite was at 19.9 today, compared with this year’s average of 17.2. About 7.2 billion shares changed hands in the gauge, 6.5 percent lower than the daily average in 2012.

--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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