China’s Stocks Fall Most in Six Weeks as Yuan Weakens on Economy

China’s stocks fell the most in six weeks, while the yuan headed for its biggest weekly slide since 2011 as a manufacturing slowdown fueled concerns the economic expansion is weakening.

China Petroleum & Chemical Corp. (600028) slid 3.1 percent after Jefferies Group LLC downgraded the shares and said yesterday’s rally was unjustified. PetroChina, the largest oil producer, retreated 3.9 percent. Sany Heavy Industry Co., the biggest machinery maker, tumbled 2.1 percent. Citic Securities Co. (600030) led declines for brokerages after the Standard reported Sinolink Securities Co. and Tencent Holdings Ltd. cut commission fees for their online stock-trading service.

The Shanghai Composite Index (SHCOMP) fell 1.2 percent to 2,113.69 at the close, sending the measure to a loss of 0.1 percent for the week after a preliminary manufacturing index by HSBC Holdings Plc and Markit Economics dropped to a seven-month low. Sinopec’s private investment plan appears more like “stealth capital raising,” Jefferies said, after the stock rallied more than 9 percent in Hong Kong and Shanghai.

“The market is worried that the government may tolerate a bigger decline in economic growth amid the restructuring of the economy,” said Wu Kan, a money manager at Dragon Life Insurance Co., which oversees about $3.3 billion. “For Sinopec, the short-term impact of private investment is hard to see but the long-term impact is positive.”

The CSI 300 Index declined 1 percent to 2,264.29. The Hang Seng China Enterprises Index (HSCEI) slipped 0.6 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.- listed Chinese companies, added 0.1 percent yesterday.

Weak Currency

China’s currency was set for its biggest weekly slide since September 2011 in offshore trading after the HSBC and Markit Economics’ Purchasing Managers’ Index fell to 48.3 for February.

The yuan dropped 0.3 percent today to 6.0866 per dollar as of 3:18 p.m. in Hong Kong, extending this week’s loss to 0.9 percent, based on data compiled by Bloomberg. The currency fell 0.1 percent to 6.0898 in Shanghai, according to China Foreign Exchange Trade System prices.

“It looks like the expectations about the yuan’s depreciation are building up because of the weakness in the economy,” said Dai Ming, a money manager at Hengsheng Hongding Asset Management Co. “The weaker currency will put big pressure on asset prices, including stocks.”

Emerging-market funds posted $1.6 billion of outflows in the week ended Feb. 19, Citigroup Inc. analysts Markus Rosgen and Yue Hin Pong said in a report today, citing EPFR data. Investors sold $456 million of Chinese stocks in a third week of outflows.

Offshore Yuan

A measure of energy stocks in the CSI 300 slumped 2.5 percent, the most among 10 industry groups. Sinopec, Asia’s biggest oil refiner, dropped 3.1 percent to 5.01 yuan. The stock had jumped 14 percent in the previous two days on a plan to open its oil-retail unit to private investors. The Hong Kong shares fell 1.2 percent today.

Yesterday’s rally was unjustified because the company’s plans are aimed at raising capital instead of reforming the state-controlled energy producer, said Jefferies, which cut its recommendation on Sinopec’s stock to hold from buy.

PetroChina slid 3.9 percent to 7.68 yuan. Sinopec Shanghai Petrochemical Co. (600688), China’s largest maker of ethylene, tumbled 9.6 percent to 3.48 yuan. Losses for Sinopec and PetroChina represented about 36 percent of the benchmark index’s decline.

Brokers Decline

Sany Heavy paced losses for industrial companies, falling 2.1 percent to 5.99 yuan.

Citic Securities, China’s biggest listed brokerage, lost 1.5 percent to 10.98 yuan. Haitong Securities Co., the second largest, slid 1.7 percent to 9.94 yuan. Sinolink Securities retreated 1.8 percent to 23.68 yuan.

Sinolink Securities and Tencent introduced the nation’s lowest commission fee yesterday for their online stock-trading service, the Standard reported, citing the companies’ websites. The commission fee is 0.02 percent, compared with the industry average 0.08 percent, it said. Traditional brokers’ commission rates will decline faster after Sinolink’s move, Junhua Mao, an analyst at China International Capital Corp., wrote in a report.

The Shanghai Composite has rebounded 6.2 percent from its Jan. 20 low, as new credit rose to a record last month and investors anticipate economic reforms at the annual meeting of the National People’s Congress that begins March 5.

“We expect markets to ramp up optimism in the leading up to the NPC meeting as the NPC is a unique event for markets to observe the government’s post-3rd-Plenum reform agenda as well as macro targets, but we reckon eventually market impacts will be limited,” Lu Ting, head of Greater China economics at Bank of America Corp., wrote in a report.

The Shanghai index is valued at 8.1 times 12-month projected earnings, compared with the five-year average multiple of 12.3, according to data compiled by Bloomberg. Trading volumes in the index were 27 percent above the 30-day average today, Bloomberg data showed.

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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