China Stocks Decline as Phone Companies, Smallcaps Retreat

China’s stocks fell, led by phone companies and small-company shares, on speculation the benchmark index’s rally yesterday to a three-month high was excessive.

ZTE Corp. lost the most in six weeks as investors sold shares of telecom companies, the second-best performer this year, after the government gave approval to domestic carriers to start offering service on a fourth-generation wireless network. Leshi Internet Information & Technology (Beijing) Co. dropped 8.7 percent for a four-day, 24 percent loss after the government announced plans to resume share offerings. BesTV New Media Co. led gains for consumer shares after it signed an agreement with Walt Disney Co. to form a joint venture in China.

The Shanghai Composite Index (SHCOMP) slipped 0.2 percent to 2,247.06 at the close, after rallying 1.3 percent yesterday. Investors are taking profits in phone companies after the announcement of 4G licenses yesterday, said Zhang Haidong, an analyst at Tebon Securities Co. in Shanghai. A measure of telecom stocks in the CSI 300 Index has rallied 36 percent this year, compared with a 2.2 percent drop for the broader index.

“There’s some selling after the gains the past two days,” Zhang said. “Small-cap stocks are still dropping because new IPOs are really bad news for them, considering their high valuations. The overall confidence of the market has improved, as we expect details of reforms to be released next year.”

The CSI 300 Index fell 0.3 percent to 2,468.20, dragged down by a 4 percent loss for the gauge of telecom companies. The Hang Seng China Enterprises Index advanced 0.1 percent. The ChiNext index of small-cap stocks retreated 3.1 percent, extending this week’s decline to 12.1 percent.

Phone Stocks

China Mobile Ltd. will deploy TD-LTE technology to promote faster downloads as it tries to push customers toward higher-priced voice and data plans. The high-speed network was scheduled to reach 100 cities covering 500 million people this year.

A gauge of telecom companies in the CSI 300 trades at 17.5 time projected 12-month earnings, compared with 12.5 times for a measure of phone shares in the MSCI Emerging Markets Index. ZTE fell 6 percent to 15.81 yuan. Fiberhome Telecommunication Technologies Co. lost 3.7 percent to 16.97 yuan.

The ChiNext trades at 29.3 times projected earnings for the next 12 months, while the Shanghai Composite is valued at 8.9 times, according to data compiled by Bloomberg. Trading volumes in the Shanghai index were 11 percent above the 30-day average for this time of day.

IPO Pressure

Leshi dropped 8.7 percent to 32.48 yuan. Shanghai Wangsu Science & Technology Co. slumped 10 percent to 69.30 yuan.

China’s plans to restart initial public offerings after a one-year break and allow companies to sell preferred stock will soak up cash and extend a bond market slump into 2014, according to the nation’s largest brokerages.

The government’s benchmark 10-year bond yield has climbed 93 basis points since June 30, the biggest half-yearly surge on record, as plans to allow the market to play a greater role in setting interest rates drove borrowing costs higher. The notes snapped a seven-day rally on Dec. 2 after the securities regulator indicated it would end the IPO freeze and start processing applications from a line of more than 760 companies.

A measure of consumer-discretionary shares in the CSI 300 added 0.5 percent, the biggest gain among the groups. BesTV rose 0.5 percent to 37.83 yuan. The company will hold a 51 percent stake in the venture with Disney, which is building a theme park in Shanghai.

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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