China Stocks Drop Most in Month on Manufacturing, Japan Selloff

China’s stocks fell the most in a month, led by material and consumer-discretionary companies, after a report showed an unexpected contraction in manufacturing and Japanese equities plunged the most since 2011.

SAIC Motor Corp. (600104) and Gree Electric Appliances Inc. (000651) slumped more than 3 percent, sending consumer-discretionary stocks to the biggest loss among industry groups. Jiangxi Copper Co. (600362), the largest producer of the metal, slid 2.8 percent on speculation China will end commodity-financing deals. EGing Photovoltaic Technology Co. led losses for solar stocks on concern the European Union will impose import duties on Chinese solar goods.

The Shanghai Composite Index (SHCOMP) fell 1.1 percent to 2,275.67 at the close, the biggest loss since April 23. The CSI 300 slid 1.3 percent to 2,582.85. The Hang Seng China Enterprises Index (HSCEI) lost 2.8 percent. The Bloomberg China-US 55 Index fell 2.2 percent yesterday. The preliminary reading for a Purchasing Managers’ Index by HSBC Holdings Plc and Markit Economics was 49.6 for this month, compared with 50.4 in April.

“The Flash PMI data weren’t good and investors are avoiding stocks related to traditional manufacturing industries,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The selloff in Japan has spread risk-off sentiment across the region.”

Chinese stocks extended losses in the afternoon after Japan’s Topix Index (TPX) slumped 6.9 percent, the most since March 2011, as financial companies plunged amid rising bond yields.

The Shanghai Composite has rebounded 4.7 percent from this year’s low set on May 2 after interest-rate cuts by central banks around the world spurred capital inflows and Chinese policymakers accelerated reforms of the economy by allowing private investment in industries such as telecommunications.

Flash PMI

The index trades at 9.3 times 12-month estimated earnings, compared with a seven-year average of 15.7 times. while trading volumes were 12 percent higher than the three-month average today, according to data compiled by Bloomberg.

HSBC’s preliminary reading, known as Flash PMI, was below the 50.4 median estimate in a Bloomberg News survey of 13 analysts. HSBC will release the final PMI reading on June 3. The National Bureau of Statistics and China Federation of Logistics and Purchasing will release their own PMI survey on June 1. The official PMI in April was 50.6, down from 50.9 in March. A reading below 50 indicates contraction.

“The slowdown is really bad,” said Ken Peng, a BNP Paribas SA economist based in Beijing. “It’s a big probability now that China’s GDP growth rate in the second quarter will be lower than in the first quarter,” he said, referring to gross domestic product. After today’s PMI report, Societe Generale SA said it expects official manufacturing data due on June 1 to also show a contraction, according to a note to clients.

Metal Stocks

A gauge tracking consumer-discretionary stocks retreated 2 percent. Gree Electric, the biggest Chinese maker of air-conditioners, dropped 3.3 percent to 26.79 yuan. SAIC, the largest carmaker, slid 3.5 percent to 15.31 yuan. Great Wall Motor Co. (601633), the biggest pickup truck maker, fell 4 percent to 37.40 yuan.

China should refrain from “micromanaging” the automotive industry and allow market competition to spur innovation and weed out weaker automakers, the Chinese Academy of Social Sciences said in a report.

Jiangxi Copper lost 2.8 percent to 21.03 yuan. Tongling Nonferrous Metals Group Co. (000630), the second largest, slid 2.7 percent to 15.27 yuan. The National Business Daily reported yesterday some banks have stopped issuing letters of credit for copper importers after a government crackdown on hot-money flows. The new rules are likely to end commodity-financing deals, Goldman Sachs Group Co. said in an e-mailed report. An end to these deals would be bearish for prices, it said. Copper prices dropped the most in a week today.

Moutai Prices

EGing Photovoltaic slumped 4.1 percent to 9.72 yuan. Zhejiang Sunflower Light Energy Science & Technology Co. (300111) slid 4.5 percent to 9.11 yuan. China and the EU failed to reach an agreement on export prices in their first round of negotiations, the Xinhua News Agency reported yesterday.

Kweichow Moutai Co., China’s biggest liquor maker by market value, led gains for consumer-staples producers, rising 1.5 percent to 202.44 yuan, the highest close since Jan. 18.

Everbright Securities Co. lifted Moutai’s six-month share-price estimate to 298 yuan because of the recent price rebound, Xing Tingzhi, an analyst at the brokerage, wrote in a report dated yesterday.

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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