China’s Stocks Fall From Two-Week High as ZTE Drops With Sinopec

Chinese stocks fell from a two-week high as declines by phone stocks overshadowed higher-than- estimated profit from China Construction Bank Corp. (939)

ZTE Corp. (000063) led telecommunications stocks lower for a second day on concern a rally this year was overdone. China Petroleum & Chemical Corp. (386) dropped from a 13-month high and was the biggest drag on the Shanghai Composite Index even as it reported profit that beat estimates. Construction Bank rose to a one-month high. Inner Mongolia Baotou Steel Union Co. surged 9.9 percent on speculation demand for the material is rising.

About five stocks declined for every four that advanced in the Shanghai Composite Index, which lost 0.1 percent to 2,326.72 at the close. A 3.9 percent rally in the past four days had driven the gauge to its highest close since March 6, bolstered by a March 21 purchasing managers index showing manufacturing is likely to expand at a faster pace this month. The CSI 300 Index retreated 0.2 percent to 2,613.10 after ending last week at its highest level since March 7.

“Investors are taking a break,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone from Suzhou, near Shanghai. “There is a lack of drive after we had gained for four days. Investors are also waiting to see how the other companies will do for their earnings.”

The MSCI Asia Pacific Index gained 0.9 percent today after Cyprus agreed to the outlines of an international bailout, paving the way for 10 billion euros ($13 billion) of emergency loans and eliminating the threat of default. Hong Kong’s Hang Seng China Enterprises Index (HSCEI) jumped 0.6 percent. The Bloomberg China-US 55 Index (CH55BN) advanced 1 percent on March 22.

PMI Reading

The Shanghai Composite has dropped 4.4 percent from a Feb. 6 peak on concern that an economic recovery will falter. A preliminary reading for a Purchasing Managers’ Index released March 21 by HSBC Holdings Plc and Markit Economics was 51.7, more than the 50.4 final reading for February, when factories closed for a weeklong Lunar New Year holiday. A reading above 50 indicates expansion.

The Shanghai gauge’s trading volumes were 17 percent lower than the 30-day average, according to data compiled by Bloomberg. The index’s 30-day volatility jumped last week to the highest level since February 2012, the data show. The measure is valued at 9.6 times projected 12-month earnings, compared with the seven-year average of 15.8, the data show.

China’s swap market is signaling interest-rate increases for the first time since 2011 after inflation accelerated to a 10-month high and the housing market defied government cooling efforts.

Technical Signal

Two-year contracts that exchange the People’s Bank of China’s 3 percent savings benchmark for a fixed payment rose eight basis points this month to 3.03 percent, data compiled by Bloomberg show. The swap had been lower than the one-year PBOC deposit rate for 16 months. Of the 27 economists surveyed this month by Bloomberg, 13 predicted higher rates in 2013, with Credit Agricole CIB, Daiwa Capital Markets and Nomura Holdings Inc. forecasting two increases.

ZTE fell 4.7 percent to 11.46 yuan, extending March 22’s 3.2 percent slump. The stock rallied 27 percent this year to March 21, sending its 14-day relative strength index to 68.40. Some analysts see a reading of 70 or more for the RSI, which measures how rapidly prices have advanced or declined during the specified time period, as a signal to sell.

China Petroleum, known as Sinopec, declined 1.6 percent to 7.60 yuan after ending last week at the highest level since Feb. 15, 2012. Net income last year fell to 63.9 billion yuan ($10.3 billion) from 73.2 billion yuan in 2011, the company said in a statement to the Shanghai Stock Exchange. That compares with the 61.8 billion yuan mean of analysts’ estimates compiled by Bloomberg.

Beating Estimates

Construction Bank advanced 1.7 percent to 4.79 yuan, the highest close since Feb. 20. Fourth-quarter net income rose 16 percent from a year earlier to 35 billion yuan, according to Bloomberg calculations based on full-year figures released yesterday. The result exceeded the 34.5 billion-yuan average estimate of 29 analysts in a Bloomberg survey.

Some 62 percent of Shanghai Composite Index (SHCOMP) companies posted annual profit that missed estimates, according to data on 140 earnings reports compiled by Bloomberg since Jan. 1.

Baotou Steel surged 9.9 percent to 5.32 yuan. Chongqing Iron & Steel Co. (601005) increased 7 percent to 3.23 yuan. Steel inventories held by traders fell 1.89 percent last week from the previous seven days, the first decline after three months of increases, Liu Yuanrui and Wang Hetao, analysts at Changjiang Securities wrote in a report dated today.

Solar Stocks

The iShares FTSE China 25 Index Fund (FXI), the largest Chinese exchange-traded fund in the U.S., added 0.3 percent to $36.94 March 22 in New York, trimming its second weekly slump to 1.3 percent.

Solar stocks, the most volatile Chinese equities in New York, will extend declines as Suntech Power Holdings Co. (STP)’s bankruptcy stokes concern they are over-leveraged, according to Gamco Investors Inc.

Four of the five stocks with the highest annualized volatility among the most-traded Chinese companies in the U.S. are solar makers, data compiled by Bloomberg show. LDK Solar Co. (LDK), the solar wafer maker which has fallen 15 percent in 2013, is posting the widest price swings behind Suntech, which plunged 40 percent last week after defaulting on $541 million of bonds.

-- Editors: Darren Boey, Richard Frost

To contact Bloomberg News staff 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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