China’s Stocks Fall Most in 3 Weeks on Economic Concerns

China’s stocks fell the most in three weeks after JPMorgan Chase & Co. advised reducing holdings and companies linked to Shanghai’s free-trade zone tumbled on concern valuations are excessive.

Shanghai International Port (Group) Co. and Shanghai Waigaoqiao Free Trade Zone Development Co. plunged more than 8 percent after more than doubling since Aug. 22. Aluminum Corporation of China Ltd. and Jiangxi Copper Co., the nation’s biggest producers of aluminum and copper, led declines for metal producers. Poly Real Estate Group Co. fell 2.3 percent, dragging a gauge of property developers to its biggest loss since June.

The Shanghai Composite Index (SHCOMP) slid 1.8 percent to 2,193.07 at the close, the biggest loss since Sept. 26. JPMorgan cut China to underweight, citing an economic slowdown and potential policy disappointment from a Communist Party meeting in November. Consumer prices quickened last month, while exports unexpectedly fell, according to government reports.

“There are increasing worries about the economy,” Li Jun, a strategist at Central China Securities Co., said from Shanghai. “We may have reached bottom but we don’t see much upside in the economic numbers. There are also concerns that the meeting in November may not provide much detail and our stocks rallied excessively on policy expectations.”

The CSI 300 Index fell 1.9 percent to 2,421.37, with gauges of telecom, consumer-discretionary, technology and industrial companies losing more than 2 percent. The ChiNext index of small companies declined 3.9 percent. The Hang Seng China Enterprises Index retreated 0.7 percent. The Bloomberg China-US Equity Index slid 0.7 percent yesterday.

Free Trade

The Shanghai Composite has climbed 13 percent from its four-year low on June 27, boosted by speculation the city’s free-trade zone will attract foreign companies and allow for financial liberalization. The China Securities Regulatory Commission today denied market speculation the zone will introduce an international stocks board, saying rules don’t allow foreign companies to sell shares in the trade area.

Shanghai Waigaoqiao declined 9.5 percent to 46.19 yuan, paring gains to 211 percent since Aug. 22, when the Commerce Ministry said the government approved a trade area in the city. Shanghai International Port dropped 8.9 percent to 5.24 yuan, trimming a rally since Aug. 22 to 105 percent. The company’s estimated price-earnings ratio jumped to a three-year high of 27.3 last month.

Property Curbs

Shanghai, the nation’s commercial hub, last month inaugurated an 11-square-mile trade zone as a testing ground for free-market policies. Companies with the word “Shanghai” in their name have paced the benchmark stock index’s rebound from a four-year low in June and the rally has spread to shares in Tianjin and Qingdao as investors speculated the government will let more cities follow Shanghai’s plan.

A measure of developers in the Shanghai index slid 4.2 percent, the biggest loss among five industry groups. Poly REal Estate, the second-largest developer, fell 2.3 percent to 9.61 yuan. Gemdale Corp. declined 2.6 percent to 5.91 yuan. Shanghai Lujiazui Finance & Trade Zone Development Co. plunged 10 percent to 22.79 yuan.

Chinese real-estate stocks were dragged down by concern of potential tightening after the Communist Party plenum next month, Credit Suisse property analyst Jinsong Du wrote in an e-mailed message. Premier Li Keqiang and President Xi Jinping are expected to seek support for national plans to reduce the government’s hand in the economy and financial system at the meeting.

The Shanghai index trades at 8.7 times projected earnings for the next 12 months, compared with the five-year average of 12.6, data compiled by Bloomberg show. Trading volumes in the stocks measure were 1 percent above the 30-day average.

Economic Outlook

The government is scheduled to publish third-quarter gross domestic product data on Oct. 18. The economy probably expanded 7.8 percent from a year earlier, according to a Bloomberg survey, up from the second quarter’s 7.5 percent pace.

“The most recent rally was from late June,” Adrian Mowat, Hong Kong-based equity strategist at JPMorgan, wrote in a note dated yesterday. “This cyclical lift appears to be fading faster than we hoped.”

Chalco, as Aluminum Corp. of China is called, slid 4.5 percent to 4.28 yuan. The company plans to sell its stake in a venture in Guinea to a unit of its parent for about $2.07 billion. Jiangxi Copper slumped 4 percent to 15.48 yuan. Cosco Shipping Co. plunged 4.7 percent to 3.62 yuan.

U.S. Debt

Senate leaders are resuming talks aimed at avoiding a U.S. default and ending the 15-day-old government shutdown after the Republican-controlled House scrapped a vote on its plan.

China, the U.S.’s largest creditor abroad, urged American lawmakers opposed to raising the debt limit by tomorrow to get out of the way.

The U.S. must “shoulder its responsibility” as the world’s biggest economy and holder of the main reserve currency and “take concrete measures before Oct. 17 to avoid a default,” Deputy Finance Minister Zhu Guangyao said at a briefing with reporters yesterday in Beijing.

“We are also worried about the U.S. debt problem,” Zhang Haidong, strategist at Tebon Securities, said in an interview from Shanghai. “If the deal fails, it will impact the global economy, including China.”

Prince Frog International Holdings Ltd. plunged by the most on record in Hong Kong after short-seller Glaucus Research Group questioned the company’s sales and branded the baby-care products maker a strong sell. The shares were halted after dropping as much as 26 percent to HK$4.66, heading for the biggest decline since its July 2011 listing.

To contact the reporter on this story: Allen Wan in Shanghai at awan3@bloomberg.net

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

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