China Stocks Fall Most in a Week on Manufacturing Data

China’s stocks fell the most in a week, led by financial and energy companies, as a bigger-than-estimated drop in a private manufacturing gauge spurred concerns about the strength of the economic recovery.

China Shenhua Energy Co. slid 1.4 percent to lead declines for coal companies. China Citic Bank Corp. fell 1.4 percent and Citic Securities Co. dropped 1.9 percent. Losses for electronics retailer Suning Commerce Group Co. dragged down a gauge of consumer companies reliant on economic growth. The preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 50.3 in August, missing the 51.5 median estimate of analysts. Numbers above 50 indicate expansion.

The Shanghai Composite Index (SHCOMP) retreated 0.4 percent to 2,230.46 at the close. Concerns about the strength of the recovery have grown after data in the past two weeks showed the weakest credit growth since 2008, an unexpected slowdown in industrial output and home prices slumping in more cities.

“The PMI data is dampening optimism that investors had accumulated,” said Zhou Lin, analyst at Huatai Securities. “Investors are concerned this means the economy’s gradual recovery has come to a halt.”

The Shanghai index has risen 12 percent since mid-March on monetary easing, faster government spending and speculation a link between the exchanges in Hong Kong and Shanghai will fuel inflows. Data last month showed growth accelerated for the first time in three quarters in the April-June period.

The CSI 300 Index fell 0.5 percent. The Hang Seng China Enterprises Index (HSCEI) decreased 1.3 percent at 3:10 p.m. The Bloomberg China-US Equity Index dropped 0.3 percent yesterday. Trading volumes in the Shanghai index were 8.4 percent above the 30-day average, according to data compiled by Bloomberg.

Flash PMI

The Shanghai gauge is valued at 8.2 times 12-month projected earnings, compared with a multiple of 7.1 for the Hang Seng China index, Bloomberg data showed.

HSBC’s manufacturing index, known as the flash PMI, dropped from July’s 51.7 and was at a three-month low.

The weaker-than-expected first indicator for August follows data last week that showed a slump in credit expansion and slowing growth in investment spending and factory production in July. While the People’s Bank of China has signaled it will maintain a “prudent” policy stance, any further deterioration this quarter may force a looser setting.

“Weaker August flash PMI points to a fragile recovery and more easing,” Jian Chang, China economist at Barclays Plc wrote in a note. “We maintain our forecast of two interest-rate cuts in the second half to help to ease debt burdens, support demand and mitigate financial risks.”

SOE Reform

A gauge of financial companies in the CSI 300 slid 0.9 percent for the steepest retreat among 10 industry groups. Ping An Bank dropped 1.2 percent. Shenhua Energy fell to the lowest level since July 29. Yanzhou Coal Mining Co. lost 1.5 percent.

“Energy stocks are slumping as there continues to be oversupply amid the weak economy,” Zhou said.

China will convert most state-owned enterprises to mixed ownership in the future, the China Securities Journal reported, citing Peng Jianguo, an official at the State-Owned Assets Supervision and Administration Commission’s research center.

The government will cut the salaries of top executives at major SOEs by up to 50 percent, especially for those in finance industry, the South China Morning Post, citing unidentified people. SOE executives currently have government perks plus pay like Western business executives, which are causing discontent, the paper reported.

Baby Bust

In Hong Kong, milk-powder producer Biostime International Holdings Ltd. (1112) fell 7.3 percent, extending losses to 19 percent during a four-day retreat.

Nine months after stock-market wagers on a baby boom in China reached record levels, the bets have turned into some of the nation’s biggest losers as living costs deter couples from having more than one child.

While Biostime and Yashili International Holdings Ltd. (1230) surged to all-time highs after the ruling Communist Party relaxed its one-child policy last November, the stocks have lost at least 40 percent this year, with Biostime leading declines in the MSCI China Index. Hengan International Group Co. (1044), a diaper maker, has dropped 8.7 percent even as the MSCI gauge rose 5.2 percent.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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