Most Chinese stocks fell as investors weighed the implications of Shanghai Chaori Solar Energy Science & Technology Co.’s bond default and prospects for economic reforms at the National People’s Congress.
Poly Real Estate Group Co. slid 1.4 percent to drag down a gauge of property developers. Haitong Securities Co. paced losses for brokerages after profit dropped last month. Xiamen Tungsten Co. surged 10 percent to lead gains for material producers. China Petroleum & Chemical Corp. (386), the refiner known as Sinopec, jumped 2.5 percent after Premier Li Keqiang reiterated this week at the National People’s Congress that China would allow non-state capital in oil and power projects.
The Shanghai Composite Index (SHCOMP) fell 0.1 percent to 2,057.91 at the close, as two stocks slid for every one that rose before the release of trade and inflation data this weekend. Investors are anticipating policies to help the economy move toward services and consumer spending, and away from the credit-driven construction that spurred growth in the past decade.
“There isn’t any exceeding of expectations from what has been announced at the meetings and the positives have been priced in the past few days,” Zhang Haidong, an analyst at Tebon Securities Co., said in Shanghai. “Investors are returning their focus to economic growth and the outlook for IPOs after the meeting.”
The Shanghai Composite climbed 0.1 percent this week, the first gain in three weeks. It has dropped 2.7 percent this year amid concern the resumption of new share offerings will divert funds and economic expansion will ease as banks tame lending.
The nation’s customs administration is scheduled to publish trade data at about 10 a.m. tomorrow. Exports may have gained 7.5 percent in February, according to the median estimate of 45 economists surveyed by Bloomberg, slowing from 10.6 percent growth in the previous month. Consumer-price growth probably slowed to 2.1 percent in February from January’s 2.5 percent, according to another survey due March 9.
The CSI 300 Index lost 0.2 percent today, while the Hang Seng China Enterprises Index (HSCEI) advanced 0.6 percent. The Bloomberg China-US Equity Index jumped 1.4 percent yesterday.
A gauge of property developers in the Shanghai gauge slid 1.3 percent, the most among five industry groups. Poly Real Estate, the second-biggest developer, lost 1.4 percent to 6.91 yuan. China Vanke Co., the largest developer, fell 0.7 percent to 7.27 yuan.
Haitong Securities dropped 0.9 percent to 9.28 yuan. The second-largest listed brokerage’s February unconsolidated net income was 367.99 million yuan, down from 438 million yuan in the previous month.
Xiamen Tungsten led gains for material companies, jumping by the daily limit to 23.83 yuan.
“Materials are surging today because of the prospects of their growth after the meeting,” said Zeng Xianzhao, an analyst at Everbright Securities Co. in Chongqing. “For instance, Xiamen Tungsten will see rising interest as tungsten will be in high demand from tech products and electric cars.”
Sinopec surged 2.5 percent to 5.35 yuan. PetroChina Co., the second-biggest refiner, advanced 1.4 percent to 7.78 yuan. Sinopec Chairman Fu Chengyu sees huge growth potential in its oil retail unit, CCTV reported yesterday.
Premier Li pledged at the NPC to allow non-state capital in oil and power projects and to speed development of mixed-ownership entities, echoing comments made in November. Policy makers may unveil more details of reforms before the legislative meeting ends on March 13.
China set a 7.5 percent target for GDP growth for 2014, the same as last year, on the first day of the NPC. Finance Minister Lou Jiwei said yesterday growth as low as 7.2 percent would meet this year’s target of “about” 7.5 percent as he tried to moderate expectations for an economy at risk from swelling debt.
Shanghai Chaori became the first company to default in China after failing to pay full interest due today on onshore bonds. The maker of energy cells to convert sunlight into power is trying to sell some of its overseas solar plants to raise money to repay the debt, Vice President Liu Tielong said in an interview today at the company’s Shanghai headquarters.
The number of Chinese companies with debt double equity has surged since the global financial crisis, suggesting the first onshore bond default by Shanghai Chaori won’t be the last.
Publicly traded non-financial companies with debt-to-equity ratios exceeding 200 percent have jumped 57 percent to 256 from 163 in 2007, according to data compiled by Bloomberg on 4,111 corporates. The yield on five-year AA- notes leapt eight basis points to 7.77 percent on March 5, the most in almost four months, after Shanghai Chaori said it won’t be able to fully pay a coupon due today on its March 2017 bonds.
“After the first one, there may be more defaults,” said Zhang Yingjie, Beijing-based deputy general manager in the research department of China Chengxin International Credit Rating Co., Moody’s Investors Service’s joint venture in China. “The domestic economy is slowing, liquidity is tightening globally and more bonds are maturing this year with greater refinancing pressure, so there may be more defaults.”
The Shanghai index is valued at 8 times 12-month projected earnings, compared with the five-year average multiple of 13.4, according to data compiled by Bloomberg. Trading volumes in the measure were 4.1 percent below the 30-day average, according to data compiled by Bloomberg.
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