China’s Stocks Drop as Economic Concerns Overshadow IPO Report

China’s stocks fell as economic reports overshadowed speculation the government will postpone the resumption of initial public offerings. A gauge of consumer-discretionary stocks dropped the most in two weeks.

Automakers SAIC Motor Corp. and Great Wall Motor Co. led declines for consumer companies reliant on economic growth, tumbling at least 3 percent. A report today showed industrial production growth in April trailed economists’ estimates, while retail sales slowed from the previous month. Ping An Insurance (Group) Co. slid the most in three weeks after regulators suspended its brokerage unit from underwriting for three months.

The Shanghai Composite Index declined 0.2 percent to 2,241.92 at the close. The CSI 300 Index lost 0.4 percent to 2,530.77. The Hang Seng China Enterprises Index (HSCEI) slumped 1.7 percent. A resumption of IPOs may be delayed until after June because of the economic environment, the China Securities Journal reported today, citing unidentified people.

“There’s no visible improvement in the macro situation,” said Liu Guangming, an analyst at Dongxing Securities Co. “The postponement of IPOs may alleviate some fear from investors but we all know that it’s going to happen sooner or later.”

The Shanghai Composite has fallen 7.9 percent after reaching this year’s high on Feb. 6 amid concern a slowing economy will curb profit growth. Trading volumes on the Shanghai index were 1.4 percent lower than the three-month average, according to data compiled by Bloomberg.

Economic Data

A measure of consumer-discretionary shares in the CSI 300 slid 1 percent, the most among 10 industry groups. SAIC Motor, the biggest automaker, slid 3.2 percent to 15.40 yuan. Great Wall Motor fell 3 percent to 37.66 yuan. Guangzhou city plans to start limiting the numbers of vehicles with out-of-town license plates on the road in June, China Business News reported today, citing an unidentified executive with a car maker.

China’s industrial output in April rose 9.3 percent from a year earlier, compared with the 9.4 percent median estimate in a Bloomberg News survey of 38 analysts and an 8.9 percent increase in March. Retail sales gained 12.8 percent, compared with a 12.6 percent increase the previous month. The National Bureau of Statistics published the data on its website today.

Recent economic reports are showing mixed signals. Manufacturing slowed last month, while exports grew faster than expected. Consumer prices rose a higher-than-estimated 2.4 percent in April, while producer prices dropped more than forecast, the National Bureau of Statistics said on May 9.

Lending was 792.9 billion yuan ($129 billion) in April, the People’s Bank of China said on May 10, compared with the median estimate of 755 billion yuan in a Bloomberg News survey. M2 money supply rose 16.1 percent from a year earlier, following March’s 15.7 percent advance.

Developers Slump

A gauge of developers in the Shanghai index fell 0.5 percent, the most among five industry groups. Poly Real Estate Group, the second-biggest Chinese developer, dropped 1.3 percent to 11.95 yuan. China Vanke Co., the largest developer, lost 1.1 percent to 11.62 yuan. China’s home sales transaction value fell 13 percent in April from the previous month as the government’s new property curbs started to take effect.

Ping An Insurance, the nation’s second-biggest insurer, slid 2.2 percent to 40.19 yuan. The China Securities Regulatory Commission has suspended Ping An Securities from conducting underwriting for three months after the brokerage helped Wanfu Biotechnology (Hunan) Agricultural Development Co. to list, according to a statement on the regulator’s website on May 10.

Underwriting Halt

Wanfu Biotechnology made false statements in its IPO materials and Ping An Securities will set up a 300 million yuan ($48.8 million) fund to compensate investors for losses, Ping An Securities said on May 10. Wanfu Biotechnology last traded at 5.65 yuan on April 22 before a trading suspension, compared with its IPO price of 25 yuan. Calls to Shen Ruisheng, spokesman for Ping An Insurance Group, and the office of Wanfu Biotechnology weren’t answered after normal working hours.

North Navigation Control Technology Co. led gains for defense-industry stocks, jumping 10 percent to 13.15 yuan. Wuhan Guide Infrared Co. advanced 3.8 percent to 17.13 yuan. Xinhua News Agency reported China formed its first aircraft carrier that can dispatch fighter jets.

The Shanghai index trades at 9.2 times estimated earnings, compared with the three-year average of 10.9 and the MSCI Emerging Markets Index’s current multiple of 10.5, data compiled by Bloomberg show.

Bond Yields

The government’s anti-corruption campaign and concern about structural problems in China’s economy have pushed down valuations of stocks, Helen Zhu, chief China strategist at Goldman Sachs, said in an interview with Bloomberg Television from Hong Kong today. The economy isn’t incrementally slowing down and may stabilize in the next couple of quarters, she said

The last time Chinese stocks were this cheap relative to bonds, the Shanghai Composite Index (SHCOMP) rallied 18 percent within two months. The prospect of history repeating itself is luring some fund managers back to equities.

The earnings yield for the Shanghai index was 3.46 percentage points higher than the average yield on top-rated 10-year corporate bonds on May 2, according to data compiled by Bloomberg. The valuation gap was last that high on Dec. 13. The ChinaBond Corporate Bond index fell in the week ended April 26 amid a probe into trading violations, ending a 25-week winning streak that was the longest since at least October 2008.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. increased 0.5 percent on May 10, adding to a 4 percent gain last week. The iShares FTSE China 25 Index Fund climbed 1.9 percent last week. Ctrip.com International Ltd., China’s biggest web travel agency, soared the most since 2009 after better-than-estimated earnings spurred analyst upgrades.

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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