China’s Stocks Drop as Insurers Retreat After Sichuan Earthquake

China’s stocks declined, led by insurers, after an April 20 quake in Sichuan province that killed at least 186 people.

China Life Insurance Co. slumped 3.1 percent, heading for its biggest drop since March 3. A gauge tracking drugmakers climbed 0.7 percent, led by Harbin Pharmaceutical Group Co. The State Council urged citizens to donate funds for reconstruction after the country’s strongest earthquake in three years left 1.5 million people needing aid. Inner Mongolia Baotou Steel Rare- Earth Hi-Tech Co. retreated 1.3 percent after profit fell.

“Investors are concerned that insurers may take the bulk of responsibility for damages by the earthquake,” Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai, said by phone.

The Shanghai Composite Index (SHCOMP) declined 0.3 percent to 2,236.68 at 10:04 a.m. local time. The CSI 300 Index fell 0.3 percent to 2,525.78. The Hang Seng China Enterprises Index (HSCEI) slumped 0.5 percent in Hong Kong. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in the U.S. rose 2.7 percent in New York on April 19.

The Shanghai Composite has dropped 8.1 percent from a Feb. 6 high, on concern slowing growth will hurt earnings. Valuations on the Shanghai gauge are 9.2 times projected 12-month profits, compared with the seven-year average of 15.8, data compiled by Bloomberg show.

The earthquake in Lushan county, about 1,650 kilometers (1,000 miles) southwest of Beijing, was measured at magnitude 6.6 by the U.S. Geological Survey and hit on the same fault line as a 7.9 earthquake that devastated nearby Wenchuan in May 2008.

Rescue Efforts

The Ministry of Finance said yesterday 1 billion yuan ($162 million) has been earmarked for rescue and relief work, relocation of people affected by the earthquake, medical treatment, subsidies for victims’ families and repairing public facilities.

A preliminary reading for a Purchasing Managers’ Index will be released tomorrow by HSBC Holdings Plc and Markit Economics. The HSBC China April manufacturing PMI may have fallen to 51.4 from 51.6 in March, according to estimates.

China’s 7.7 percent growth rate is “normal” as the world’s second-largest economy sacrifices growth to make structural reforms, People’s Bank of China Governor Zhou Xiaochuan told Bloomberg News outside a meeting of the International Monetary Fund in Washington on April 20.

Concern that China’s economy will struggle to grow has helped drag Shanghai’s stock trading volumes toward the lowest levels versus Tokyo in almost five years. About 2.1 billion more shares were traded on the Shanghai Composite than on the Topix Index on April 12, the least since November 2008 apart from one other occasion and holidays, according to data compiled by Bloomberg.

ETF Bets

Bets (FXI) on declines in the largest Chinese exchange-traded fund are surging to the highest level since 2007. Short interest on the iShares FTSE China 25 Index Fund climbed to 48.6 million shares, or 3.2 percent of the total outstanding at the end of March, the most since June 2007, data compiled by Bloomberg show.

“I am cautious,” Elena Ogram, who holds fewer Chinese stocks than global benchmarks in her $50 million portfolio of emerging-market assets at Bank Bellevue AG, said by phone from Zurich April 18. “There’s more uncertainty and less visibility. I am not expecting spectacular earnings from Chinese companies.”

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. slumped 1.1 percent in New York last week, led by solar manufacturers.

Of the 55 companies on the China-US stock measure, 16 are scheduled to report quarterly earnings this week, including China Life Insurance Co., Yanzhou Coal Mining Co., Guangshen Railway Ltd. (GSH), China Petroleum & Chemical Corp. and Baidu Inc.

-- Editors: Richard Frost, Chan Tien Hin

To contact the reporter on 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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