China’s Stocks Fall Before Factory Report, Paring Gain

China’s stocks fell, paring the benchmark index’s biggest monthly gain this year, before tomorrow’s manufacturing report. Property and technology companies, among the best-performing shares in May, led losses.

China Vanke Co. (000002) and Poly Real Estate Group Co. slid at least 2.7 percent, dragging down a gauge of developers, after the Economic Information Daily reported Hangzhou city may impose property taxes on existing homes. Sanan Optoelectronics Co. (600703) retreated 4.7 percent, paring this month’s gain to 35 percent. Anhui Conch Cement Co. and Aluminum Corp. of China Ltd. paced losses for material companies, losing at least 0.9 percent. SAIC Motor Corp. retreated 0.7 percent after Chairman Hu Maoyuan said he’s concerned about the company’s share price.

The Shanghai Composite Index (SHCOMP) slid 0.7 percent to 2,300.60 at the close, paring this week’s gain to 0.5 percent. It jumped 5.6 percent in May, the biggest monthly gain since December 2012. The CSI 300 Index declined 1.1 percent to 2,606.43, trimming the monthly advance to 6.5 percent. The Hang Seng China Enterprises Index fell 1.2 percent, extending this month’s decline to 3.2 percent.

“Investors are still waiting for economic data like tomorrow’s PMI,” Zeng Xianzhao, an analyst at Everbright Securities Co., said by phone from Chongqing. “There are some gains recently but it won’t last because we don’t see obvious drivers to continue the rally.”

The Shanghai index has rebounded 5.8 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.

PMI Data

The government is scheduled to release results of its official manufacturing index for May tomorrow. The reading is estimated to be 50, down from the previous month’s 50.6, according to the median forecast of 30 economists surveyed by Bloomberg. Of the economists, 14 forecast PMI will be below 50, including Nomura Holdings Inc. economist Zhang Zhiwei, who accurately estimated the preliminary reading of 49.6 for HSBC and Markit’s Purchasing Managers Index last week. That was below the 50 level that divides expansion and contraction.

Chalco, as Aluminum Corp. of China is known, lost 1 percent to 4.11 yuan. Anhui Conch, the largest cement producer, retreated 0.9 percent to 16.90 yuan. A gauge of material companies in the CSI 300 fell 0.9 percent, paring gains to 2.5 percent this month, the worst performing industry after energy.

SAIC Motor, the biggest Chinese automaker, paced declines for consumer companies that are reliant on economic growth. The shares fell 0.7 percent to 15.63 yuan, adding to a 11 percent slump this year.

“Our company has investment value,” SAIC Chairman Hu said yesterday. “We’re discussing the issue. We also want our share price to go up.”

Property Stocks

The Shanghai Composite trades at 9.4 times 12-month estimated earnings, compared with a seven-year average of 15.5 times, according to data compiled by Bloomberg. Trading volumes were 9.2 percent above the 30-day average today, while 30-day volatility was at 16.2, compared with this year’s average of 19.3, data compiled by Bloomberg show.

The Shanghai property sub-index lost 1.9 percent today, the most among the five industry groups. The measure gained 8.9 percent this month, with its estimated price-earnings ratio jumping to a three-month high of 8,1 on May 28. Vanke, the nation’s biggest listed property developer, retreated 2.7 percent today to 11.98 yuan. Poly Real Estate, the second largest, fell 2.8 percent to 12.47 yuan.

The proposal of taxing existing homes has been submitted to the State Council, or the cabinet, for approval, the Economic Information Daily reported. The property measure is still up 10 percent this month, matching the commercial sub-index’s gains.

Technology Outlook

A measure of technology stocks in the CSI 300 sank 1.6 percent. Sanan Optoelectronics slid 4.7 percent to 19 yuan. GoerTek Inc., a supplier of Apple Inc., dropped 4.1 percent to 35.04 yuan. Shenzhen Laibao High-technology Co., a touch-screen maker, lost 3.4 percent to 22.50 yuan.

Even with today’s loss, the technology sub-index is still up 17 percent this month for the best performance among the 10 industry groups. The measure trades at 25.9 times estimated earnings, compared with 11 times for the broader CSI 300.

“What I like about tech is that it represents an aspect of China that people don’t immediately associate with,” Alex Ng, Chief Investment Officer for Asia Pacific at BNP Paribas Investment Partners, said at a conference in Singapore today. “Tech stocks have done well. The business models have also been good.”

The Bloomberg China-US Equity Index advanced 0.6 percent in New York yesterday. Chinese stocks rose in New York as Trina Solar Ltd. climbed after Goldman Sachs Group Inc. upgraded U.S. solar companies, while Spreadtrum Communications Inc. surged on an improved industry outlook.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net; Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Allen Wan at awan3@bloomberg.net

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