China H-Shares Post Biggest Weekly Drop Since October

Chinese stocks fell, sending the Hang Seng China Enterprises Index (HSCEI) to its biggest weekly drop since October, amid deepening concern that weaker economic growth will curb earnings and spur corporate defaults.

The gauge of Chinese companies listed in Hong Kong dropped 0.3 percent to 9,298.64 at the close, extending this week’s decline to 4.2 percent. The gauge of so-called H shares fell as much as 20 percent from its Dec. 2 high, a threshold some investors consider a bear market, before paring losses in the afternoon session.

Yanzhou Coal Mining Co. (1171) and Great Wall Motor Co. (2333) have led the retreat since December with losses exceeding 30 percent amid data showing falling exports, weaker manufacturing and slower retail-sales growth. Agricultural Bank of China Ltd. paced declines among lenders as the nation’s first onshore corporate bond default last week spurred concern that more will follow.

“It looks like the market hasn’t fully priced in the economic slowdown,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “The market needs some time to digest the negative economic data and the risk of stocks further going down is still there.”

Developing-nation equity funds posted a 20th week of outflows in the period ended March 12, led by $878 million of withdrawals from China funds, Citigroup Inc. said in a report today, citing data compiled by EPFR Global.

Growth Target

The Hang Seng China index closed at the lowest level since July 10. The Shanghai Composite Index (SHCOMP) lost 0.7 percent to 2,004.34, while Hong Kong’s Hang Seng Index (HSI) retreated 1 percent.

Shares pared some of their declines toward the end of trading as bargain hunters stepped in, according to Francis Lun, the chief executive officer of Geo Securities Ltd.

“It’s bottom fishing,” Lun said by phone from Hong Kong. “The market is oversold, it’s time for a technical rebound.”

The H-shares gauge has wiped out almost all of its 30 percent advance from a low in June, a rally that was fueled by easing stress in the country’s money markets and a government pledge in November to enact the broadest package of economic reforms since at least the 1990s. Investors had been looking for further policy guidance from this month’s meeting of the National People’s Congress in Beijing.

This year’s 7.5 percent economic expansion target is “flexible” and some financial product defaults may be unavoidable, Premier Li Keqiang told a press conference at the end of the NPC yesterday. Bank of America Corp., UBS AG, JPMorgan Chase & Co. and Nomura Holdings Inc. have all lowered their forecasts for Chinese economic growth in 2014.

Tencent Tumbles

“No new reforms to stimulate the economy” is another reason investors have turned more pessimistic on the stock market, said Zhang Gang, a strategist at Central China Securities in Shanghai. “It could fall a bit more.”

China Citic Bank Corp. (998), which announced plans to offer virtual credit cards with Tencent Holdings Ltd. earlier this week, led declines in the H-share gauge with a 6.9 percent drop today before trading in the shares was halted. A person with knowledge of the matter said the central bank blocked the plan. Tencent shares sank 4.1 percent, the most since Feb. 4.

China’s industrial-output, fixed-asset investment and retail-sales growth slowed more than estimated in the first two months of the year, data showed yesterday. Reports over the weekend showed the steepest slide in exports since 2009 and the slowest inflation in 13 months.

Factory production rose 8.6 percent in the January-February period from a year earlier, the National Bureau of Statistics said yesterday, versus the 9.5 percent median projection among analysts surveyed by Bloomberg News.

Investors Shaken

“It’s economic growth,” Pauline Dan, the head of greater China equities at Pictet Asset Management (HK) Ltd., said by phone from Hong Kong. “The market is also worried about bad debt rising, potential defaults and fund outflows from emerging markets.”

The H-share gauge has posted 24 bear-market declines since Bloomberg began compiling the data in July 1993, with an average retreat of 38 percent and mean duration of 118 calendar days. The measure is valued at 1.1 times net assets, the biggest discount since September 2003 to the MSCI All-Country World Index of developed and emerging shares, which has a ratio of 2.

“There’s bad news every day,” said Du Liang, an analyst at Shanxi Securities Co. in Beijing. “Investors are very shaken and sentiment is pessimistic.”

To contact the reporters on this story: Kana Nishizawa in Hong Kong at knishizawa5@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editors responsible for this story: Sarah McDonald at smcdonald23@bloomberg.net; Michael Patterson at mpatterson10@bloomberg.net Allen Wan

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