Chinese stocks fell, sending the Hang Seng China Enterprises Index into a bear market, and the yuan sank to a one-year low as concern deepened that the world’s second-largest economy is slowing.
The gauge of Chinese companies listed in Hong Kong dropped 1.7 percent to 9,203.07 at the close, extending its retreat from a Dec. 2 high to 20 percent. BYD Co. (1211), the Warren Buffett-backed maker of electric cars, tumbled 14 percent today while the CSI 300 Index of mainland-listed shares sank 1.6 percent to a five-year low. The yuan weakened 0.5 percent to 6.2275 per dollar.
Stocks fell after Goldman Sachs Group Inc. cut its forecast for China’s economic growth, a troubled solar company said its bonds will be halted from trading, and the Federal Reserve signaled U.S. interest rates may rise faster than previously forecast. The Hang Seng China gauge is the world’s worst-performing benchmark index this year amid data showing falling exports, weaker manufacturing and slower retail sales.
“There are continuing concerns about GDP growth, which led to brokerages like Goldman Sachs cutting their forecast,” Zhang Haidong, an analyst at Tebon Securities Co., said by phone from Shanghai. “The prospect the Fed will increase interest rates will weigh on investors’ sentiment as that will lead to liquidity problems in emerging markets. Coupled with the recent yuan depreciation, some investors are concerned.”
Solar-cell maker Baoding Tianwei Baobian Electric Co. said its bonds will be halted from trading tomorrow, fueling concern that bad debts will increase after Shanghai Chaori Solar Energy Science & Technology Co. defaulted this month and a closely held developer with 3.5 billion yuan ($562 million) of debt collapsed. Policy makers have responded by announcing plans to speed up construction projects and let developers raise funds by selling shares for the first time since 2010.
Goldman Sachs cut its estimate for China’s economic expansion this year to 7.3 percent from 7.6 percent. The nation’s official 2014 growth target is 7.5 percent, which would be the slowest pace since 1990.
“The market is focused on uncertainty about China’s overall economy,” said Michael Liang, the chief investment officer at Foundation Asset Management (HK) Ltd., which oversees about $150 million. “Undoubtedly, there will be more defaults coming up.”
China will “seize the moment to roll out already-determined measures in expanding domestic demand and stabilizing growth,” the State Council said in a statement last night. The China Securities Regulatory Commission said yesterday that developers Tianjin Tianbao Infrastructure Co. and Join.In Holding Co. are allowed to sell yuan-denominated A shares in private placements.
The Chinese currency sank in onshore and offshore trading today after the central bank weakened its reference rate by 0.18 percent, matching a March 10 cut that was the biggest since July 2012.
The Fed’s bond-buying program, which was reduced by $10 billion to a $55 billion monthly rate yesterday, may be wound down by year-end with a rate increase to follow within six months, Chair Janet Yellen indicated yesterday. The central bank forecast the key rate, currently near zero, would be 1 percent by the end of 2015 and 2.25 percent a year later.
China's 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.
Before today, the measure had 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.
BYD tumbled 14 percent to HK$47.60. The carmaker projected first-quarter net income of as much as 15 million yuan, which Nomura Holdings Inc. said was lower than expected.
Tencent Holdings Ltd. (700), Asia’s biggest Internet company, dropped 1.7 percent to HK$558 after posting fourth-quarter net income that missed the average in a Bloomberg survey of analysts. Tencent, which is the best performer on Hong Kong’s benchmark Hang Seng Index since its 2004 listing, plans a 5-1 share split to boost holdings by individuals. The Hang Seng gauge dropped 1.8 percent today.
China Mobile Ltd. (941), the world’s largest phone company, retreated 3.6 percent to HK$67 after posting its largest profit decline since 1999 on rising costs to build out high-speed networks and attract new users.
Of the 82 companies that reported annual earnings in Hong Kong this month for which Bloomberg has estimates, 57 percent exceeded estimates. More than 400 companies are scheduled to report results through next week, according to data compiled by Bloomberg.