Chinese Stocks Decline in Low Volumes as Industrials Slide

China’s stocks fell for the first time in three days, led by industrial and material companies, amid slow trading on the Shanghai bourse. Shanxi Coal International Energy Group Co. (600546) lost 1.8 percent and BBMG Corp., a cement producer, retreated 2.2 percent before the government announces industrial company earnings tomorrow. Xinjiang Talimu Agriculture Development Co. (600359) jumped 10 percent after policy makers said they will take steps to support the province. Inspur Electronic Information Industry Co. climbed to a record on speculation banks will replace some servers made by International Business Machines Corp. with local brands.

The Shanghai Composite Index (SHCOMP) dropped 0.3 percent to 2,034.57 at the close, with volumes 19 percent below the 30-day average. The Hang Seng China Enterprises Index (HSCEI) retreated 0.4 percent. The Shanghai measure has lost 3.85 percent this year amid concern slowing economic expansion and a weaker property market will hurt earnings.

“The concern about slowing growth is always there,” said Dai Ming, a money manager at Hengsheng Hongding Asset Management Co. in Shanghai, which oversees about $193 million. “What we’ve seen is that when growth slows, the government rolls out some mini-stimulus. But that probably won’t help to check the downtrend in the economy.”

The Shanghai gauge advanced 0.3 percent yesterday after Premier Li Keqiang said the nation will fine-tune policy to support growth. Goldman Sachs Group Inc. and Nomura Holdings Inc. said Li’s comments signal looser monetary policy, while China International Capital Corp. predicted state support for the economy will boost investor sentiment.

Stock Valuations

The Shanghai Composite is valued at 7.5 times 12-month projected earnings, compared with the five-year average multiple of 11.8, according to data compiled by Bloomberg. It has gained 0.4 percent in May, heading for its monthly advance since February.

Investors should overweight Chinese shares after “massive underperformance,” Manishi Raychaudhuri, an analyst at BNP Paribas SA, wrote in a note today. “Pockets of fundamental improvement –- reviving earnings estimates and recovering exports –- are not discounted in China’s cheap valuations.”

Gauges of industrial and material companies both dropped 0.7 percent on the CSI 300 Index, which slid 0.4 percent. Shanxi Coal extended its decline this year to 22 percent. BBMG fell for the first time in six days.

The statistics bureau is scheduled to release April data on industrial companies’ profits tomorrow.

IBM Servers

Xinjiang Talimu Agriculture jumped by the daily limit. Xinjiang Qingsong Building Materials & Chemicals Group Co. rallied 9.2 percent. China will take “special measures” to support development of southern Xinjiang, Xinhua News Agency reported, citing a Politburo meeting chaired by President Xi Jinping yesterday.

The Chinese government is pushing domestic banks to remove high-end servers made by IBM and replace them with a local brand, according to people familiar with the matter, in an escalation of the dispute with the U.S. over spying claims.

China Postal Savings Bank Co. is using servers made by Jinan-based Inspur Group Ltd. as part of a trial program that began in March 2013, said the four people, who asked not to be identified because the review hasn’t been made public. The government plans to expand that trial to other banks, they said.

Inspur Electronic Information (000977) climbed 4.7 percent. The unit of Inspur Group surged 29 percent over five days through yesterday. Inspur International Ltd. gained 9.4 percent in Hong Kong today.

Ship Sinks

Vietnam said a Chinese vessel sank one of its fishing boats, the most serious bilateral standoff since 2007 and a move that underscores China’s assertiveness in pushing its claims in the disputed South China Sea.

“It was rammed by a Chinese boat,” Foreign Ministry spokesman Le Hai Binh said by phone. The 10 fishermen on board DNa 90152 were rescued by other Vietnamese ships after yesterday’s scrap, according to a government statement posted on its website. The incident occurred after some 40 Chinese fishing vessels encircled a group of Vietnamese boats in Vietnam’s exclusive economic zone, the government said.

The Vietnamese craft overturned as it harassed a Chinese fishing boat in the area, the official Xinhua News Agency reported.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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

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