China’s Stocks Drop as Policy Speculation Eases; Yibin Slumps

China’s stocks fell, following the benchmark index’s biggest gain in three weeks, as waning speculation of lower bank reserve requirements overshadowed an increase in a manufacturing gauge.

Wuliangye Yibin Co. slumped to the lowest level since July 2010, leading liquor makers lower after Xinhua News Agency cited China’s quality watchdog as saying samples made by JiuGuiJiu Co. contain excessive levels of plasticizer. JiuGuiJiu has been halted from trading this week. Inner Mongolia Baotou Steel Rare- Earth Hi-Tech Co. (600111), sank the most in a week after saying it will continue to halt output at some smelting units.

The Shanghai Composite Index (SHCOMP) closed 0.7 percent lower at 2,015.61. It jumped 1.1 percent yesterday on optimism the People’s Bank of China would cut the reserve-ratio requirement. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong rose 0.6 percent as a purchasing managers’ index signaled the nation’s manufacturing industry may have expanded in November for the first time in 13 months.

“When the reserve-ratio requirement speculation didn’t materialize, stocks dropped again today, showing the lack of confidence among investors,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone from Suzhou. “There’s improvement in the economic data from October and as seen from the PMI today, but we cannot make a concrete conclusion that the economy is recovering yet. It may only show real improvement from the second or third quarter next year.”

Lower Valuation

The preliminary reading of 50.4 for a HSBC Holdings Plc and Markit Economics purchasing managers’ index released today compares with October’s 49.5. A reading above 50 indicates expansion. Data on industrial production, fixed-asset investment, retail sales and exports growth exceeded economists’ estimates last month.

The CSI 300 Index (SHSZ300) lost 0.8 percent to 2,177.55. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, advanced 1 percent in New York.

A gauge of consumer-staple companies in the CSI 300 Index slumped 1.6 percent, the most of 10 industry groups, to close at the lowest level since Aug. 26. Wuliangye Yibin, China’s biggest liquor maker by revenue, fell 4.7 percent to 27.46 yuan, the lowest close since July 23, 2010. Kweichow Moutai Co. sank 0.6 percent to 217.29 yuan. Sichuan Swellfun Co., part-owned by Diageo Plc, tumbled 4.1 percent to 19.06 yuan.

Inspections showed as much as 1.04 milligrams per kilogram of dibutyl phthalate, or DBP, against the “standard” of 0.3 mg, in JiuGuiJiu’s samples, Xinhua reported, citing the General Administration of Quality Supervision, Inspection and Quarantine. Tests show that almost all Chinese liquor products contain plasticizers, at an average 0.537 milligrams per kilogram, Xinhua said, citing the China Alcoholic Drinks Association.

Energy Shares

Baotou Steel, China’s biggest producer of the metallic elements used in batteries and magnets, dropped 2.1 percent, the most since Nov. 15, to 33.22 yuan. The company will shut for another month smelting units that have been closed since Oct. 23, according to a statement to Shanghai’s Stock Exchange.

A gauge of energy shares in the CSI 300 declined 1.3 percent, the second-biggest drop among industry groups. The energy gauge surged 1.7 percent yesterday, the most since Oct. 18. PetroChina Co., the nation’s largest oil producer, lost 0.9 percent to 8.51 yuan. Yanzhou Coal Mining Co. fell 2.5 percent to 16.50 yuan.

The Shanghai Composite slid to 1,995.17 yesterday before rallying in the final hour of trading, the third time in two months the gauge has rebounded after dropping below the 2,000 level. There had been speculation the PBOC would cut the reserve-ratio requirement from Nov. 25 by 0.5 basis points, Li Jun, a strategist at Central China Securities Co., said yesterday.

‘Technical Bounce’

The Shanghai Composite has fallen 8.4 percent this year and trades at 9.6 times estimated profit for 2012, compared with the 17.8 average multiple since Bloomberg began compiling the data in 2006. The gauge’s trading volumes were 28 percent lower than the 30-day average for this time of day, data compiled by Bloomberg show. Thirty-day volatility on the index was at 13, compared with this year’s average of 17.1.

While stocks are due for a “technical bounce,” the gauge may fall between 5 percent and 10 percent as prospects for monetary easing diminish and U.S. budget concerns sour sentiment, Hao Hong, Bank of Communications Co.’ managing director of research, wrote in an e-mail yesterday. Hong is the only strategist among 13 brokerages surveyed by Bloomberg at the start of the year to forecast declines for Chinese stocks in 2012.

New Leaders

“The index is falling at a measured speed, most likely countered by government purchases,” Hong said. The 2,000 level “does not seem like a final bottom, even though valuation is low,” he wrote.

The Shanghai Composite has fallen 1.9 percent since the ruling Communist Party named new leaders on Nov. 15 to oversee the world’s second-largest economy. The Bloomberg China-US 55 Index (CH55BN) gained 2.1 percent in that time. The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., advanced 1.1 percent yesterday.

-- Editors: Darren Boey, Chan Tien Hin

To contact the reporter for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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