China Stocks Fall on Concern Europe Debt Crisis to Hurt Exports

China’s stocks fell, led by developers and shipping companies, on concern Europe’s debt crisis and government measures to contain home prices will damp demand for Chinese exports and hurt earnings.

China Cosco Holdings Co., the country’s biggest shipping line, lost 1.7 percent after Shanghai Securities News reported China’s export growth to Europe may slow as much as seven percentage points. China Vanke Co. and Poly Real Estate Group Co. paced declines after Goldman Sachs Group Inc. and Credit Suisse Group Inc. cut profit estimates for property companies.

“Sentiment was already bearish as a result of government tightening,” said Howard Wang, Hong Kong-based head of the Greater China team at JF Asset Management, which oversees about $50 billion. “It would be complacent for us to assume no impact from Europe.”

The Shanghai Composite Index fell 6.98, or 0.3 percent, to close at 2,587.81, erasing an earlier 1.1 percent gain. The gauge has lost 21 percent in 2010, Asia’s worst performer, after surging 80 percent last year. The measure entered a bear market on May 11 after falling 21 percent from its Nov. 23 high. The CSI 300 Index slid 9.17, or 0.3 percent, to 2,762.17 today.

Stocks around the world dropped and metals fell as the euro traded near a four-year low after Germany stopped speculators from some bets against government bonds and banks.

The BaFin markets regulator banned investors from naked short sales -- speculating on declines in companies they don’t own -- for 10 banks and insurers, as well as naked credit-default swaps on euro-area government bonds starting today.

Shipping Lines

China Cosco slid 1.7 percent to 10.16 yuan on concern Europe’s debt crisis may slow a recovery in the industry. China Shipping Development Co. dropped 1.5 percent to 9.53 yuan.

The growth of China’s exports to Europe may slow by six to seven percentage points in May, June, and in the third quarter of the year as Europe’s debt crisis deals a “severe” blow to foreign trade, the Shanghai Securities News reported today, citing Huo Jianguo, a researcher at the Ministry of Commerce.

Europe is China’s biggest export destination, making up 20 percent of its total overseas sales. The yuan has appreciated more than 14 percent against the euro in the past four months and the gain is putting pressure on China’s exporters, Ministry of Commerce spokesman Yao Jian said May 17.

Vanke, the nation’s biggest developer by market value, fell 1.1 percent to 7.26 yuan. Poly Real Estate Group Co. slid 1.7 percent to 10.71 yuan. The SE Shang Property Index dropped 1.2 percent, the biggest decline among the five industry groups.

Earnings Estimates

Goldman Sachs, ranked second for Asian property coverage by Institutional Investor magazine, lowered its 2010 net income estimates for Chinese property companies by an average 13 percent and reduced earnings forecasts for the next two years by 25 percent, analysts led by Yi Wang wrote in a report today. Credit Suisse pared earnings-per-share estimates by as much as 15 percent for 2010 and 20 percent for 2011.

The government raised mortgage rates and down payments in April to curb property price gains, while the central bank this month ordered banks to set aside more deposits as reserves for a third time in 2010.

Home transactions in some Chinese cities began decreasing in mid-April, China’s top economic planning agency said today after trading hours. Prices have reached a plateau in some cities and speculators are exiting the property market, the National Development and Reform Commission said on its website.

Equity losses have slashed valuations on the Shanghai index to 19.4 times reported earnings, compared with the multiple of 37 times in July 2009, according to weekly data compiled by Bloomberg.

The bear market in Chinese stocks will probably deepen after the Shanghai Composite dropped beneath its low reached in August, according to Bespoke Investment Group LLC.

Buying Opportunity

The slump in Chinese stocks will be an opportunity for investors to add to holdings, according to Threadneedle Asset Management Ltd.

“The market’s not looking expensive so we think it’s a good time to pick up some stocks,” said Gigi Chan, a fund manager at Threadneedle Asset, which oversees about $97 billion.

China Life Insurance Co., the nation’s biggest insurer, started buying equity funds “heavily” last week in China, lifting its stock holdings to close to 15 percent of its portfolio assets, the Shanghai Securities News reported, citing unidentified investment bankers and fund managers.

Ping An Insurance Group Co. and China Pacific Insurance Group Co. also bought stock funds recently at smaller levels, the people said, according to the report. About 20 to 30 small insurers also entered the market, the report said.

Drugmakers Gain

Investors opened 46 percent more accounts to trade stocks in China during the week ended May 14 than a week earlier, according to the China Securities Depository and Clearing Corp.

Beijing Tongrentang led gains for drugmakers, adding 2.9 percent to 27.64 yuan. Investors should buy “defensive” shares such as health-care and avoid property-related stocks including brokerages and commodity producers in the second half, according to CLSA’s head of China A-share research Manop Sangiambut.

Zhejiang Hisun Pharmaceutical Co., which makes anti-tumor drugs, rose 1.2 percent to 27.41 yuan. Inner Mongolia Yili Energy Co., a Chinese medicine producer, gained 1.4 percent to 15.45 yuan.

The following stocks also rose or fell in China trading. Stock tickers are in parentheses after company names:

Datang Telecom Technology Co. (600198 CH), the network equipment maker, gained by the daily 10 percent limit to 15.20 yuan, after saying it plans to form a 5 billion yuan ($732 billion) fund to buy private companies.

Jiangsu Yuyue Medical Equipment Co. (002223 CH), a maker of health-care supplies, gained 7 percent to 53.50 yuan, the highest since it sold shares in April 2008. China Merchants Securities Co. gave its stock a “strong buy” rating.

Nanjing Iron & Steel Co. (600282 CH), a steelmaker, rose 2 percent to 4.07 yuan after saying it plans to invest 211.7 million yuan for a 49 percent stake in a coal mine in China’s eastern province of Anhui.

Wiscom System Co. (002090 CH), a software maker, surged 9.9 percent to 26.89 yuan, after the company said it will pay a cash dividend of 2.5 yuan and 10 bonus shares for every 10 shares held.

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