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China Stocks Drop to 3-Week Low as Free-Trade Firms Fall

Source: ChinaFotoPress via Getty Images

An investor watches the electronic board at a stock exchange hall in Shanghai. Close

An investor watches the electronic board at a stock exchange hall in Shanghai.

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Source: ChinaFotoPress via Getty Images

An investor watches the electronic board at a stock exchange hall in Shanghai.

China’s stocks fell to the lowest level in almost three weeks as companies linked to the Shanghai free-trade zone tumbled amid concern gains were excessive.

Shanghai International Port Group Co. (600018) and Shanghai Material Trading Co. slumped by the 10 percent daily limit after more than doubling this quarter. Haitong Securities Co. (600837), the country’s second-largest listed brokerage by market value, declined for a third day after saying it plans to buy a Shanghai-based leasing company from private-equity firm TPG.

The Shanghai Composite Index (SHCOMP) dropped 1.9 percent to 2,155.81 at the close, the lowest level since Sept. 6. Companies with the word Shanghai in their names have led the gauge’s 8.9 percent advance since June, the biggest quarterly increase since the three months ending in September 2010, on speculation they will benefit from the government’s plan to reduce regulation in the free-trade area.

“The Shanghai free-trade zone concept stocks have gone too far and valuations are too high given their current earnings outlook,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “When it’s getting closer to when the zone will officially open, it’s time to dump these shares as all good news is priced in.”

The CSI 300 Index declined 1.8 percent to 2,384.44. The Hang Seng China Enterprises Index (HSCEI) retreated 0.6 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.4 percent in New York yesterday.

National Day

Trading volumes in the Shanghai Composite were 3.2 percent lower than the 30-day average today, according to data compiled by Bloomberg. The index is valued at 8.6 times projected earnings for the next 12 months, compared with the five-year average of 12.6 times.

China’s local markets will be shut Oct. 1-7 for National Day holidays. The statistics bureau is due to release August data on industrial companies’ profits at 9:30 a.m. tomorrow.

Shanghai International Port sank 10 percent to 6.24 yuan. Shanghai Material Trading tumbled 10 percent to 15.75 yuan.

Shanghai International Port traded at 27.5 times 12-month projected earnings on Sept. 25, the highest level since April 2010, according to data compiled by Bloomberg.

The 14-day relative strength measure for the stock, measuring how rapidly prices have advanced or dropped during a specified time period, was at 75.5 yesterday. Readings above 70 indicate a price may be poised to fall.

Shanghai Jielong Industry Corp. (600836) slumped 10 percent to 10.12 yuan after saying in an exchange statement that the approval of the Shanghai free-trade zone will have no direct impact on the company’s earnings in the short term. The stock jumped 50 percent in the past month through yesterday.

Free-Trade Zone

The city’s free-trade area will open on Sept. 29, the Xinhua News Agency reported on its microblog on Sept. 24, citing the local government.

A media report that the trade zone will lift a ban on Facebook Internet access is incorrect, the People’s Daily online reported, citing an unidentified person. South China Morning Post reported Sept. 24 that China will lift a ban on access to Facebook, Twitter and the New York Times in the zone.

Haitong Securities dropped 1.7 percent to 12.16 yuan. It will buy 100 percent of UT Capital, the Shanghai-based brokerage said in a filing to the city’s stock exchange yesterday. Haitong will pay cash for UT Capital, which TPG bought in 2008, TPG said in a separate e-mailed statement.

China must prevent rising land prices, which in some in cases have been prompted by local governments selling plots in prime locations because they are under debt pressures, the China Securities Journal reported.

Alibaba Talks

The Beijing city government suggested cutting its average annual economic growth target to about 7.5 percent from 8 percent for the five years through 2015, the People’s Daily reported, citing the standing committee of the municipality’s people’s congress.

Alibaba Group Holding Ltd.’s planned initial public offering in New York will help Chinese Internet companies from Sina Corp. to Baidu Inc. (BIDU) extend rallies, Baron Capital Inc. said.

Alibaba, China’s biggest e-commerce company, is seeking U.S. law firms to help with an IPO after talks for a Hong Kong listing broke down following management’s proposal to keep control in a share sale, according to two people familiar with the matter.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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