Railway Stocks Tumble in China, Hong Kong After Train Crash

Rail Stocks Tumble in China, Hong Kong After Train Crash
A policeman looks at rescue operations continuing on July 24, 2011 on the wreckage of two high-speed trains that collided the night before in the town of Shuangyu, on the outskirts of Wenzhou, China. Photographer: Philippe Lopez/AFP/Getty Images

China’s railway companies tumbled in Shanghai and Hong Kong trading on concern a deadly bullet train accident in the eastern part of the country will prompt the government to slow construction and reduce investment.

CSR Corp., the largest train maker, slumped 8.9 percent to 6.04 yuan today, the biggest decline since August 2008. China CNR Corp., the second-largest, lost 9.7 percent to 5.87 yuan, its biggest drop since listing in 2009. China Railway Construction Corp., builder of more than half of the nation’s rail links since 1949, sank 5.9 percent in Hong Kong.

The Chinese government will slow railway investment as it pays more attention to safety and travelers switch to other transport, according to Shenyin & Wanguo Securities Co. and Barclays Plc. The high-speed train accident may damp demand for property in cities along the new railway lines, said Credit Suisse Group AG. China plans to spend 2.8 trillion yuan ($434.3 billion) on railways in the five years ending 2015.

“The high-speed rail concept involves a large number of companies and if investment is cut, even the smallest parts makers and steelmakers will get hurt,” said Tu Jun, a strategist at Shanghai Securities Co.

The accident occurred on July 23 near the eastern city of Wenzhou when a train lost power after reportedly being struck by lightning and was rear-ended by a second train, the state-run Xinhua News Agency said, citing the provincial emergency office. The crash killed at least 36 people, according to the rail ministry.

Rating Downgrade

“We expect travelers to gradually turn to alternative transport, including expressways,” Patrick Xu and Jon Windham, analysts at Barclays, wrote in today’s report. The accident is also expected to deter development of high-speed railway lines under construction or in planning across China, they wrote.

Shares of CSR and CNR were cut to “neutral” at Shenyin & Wanguo, ranked China’s most influential research provider by New Fortune magazine last year. The railway ministry will postpone auctions for railway equipment, Huang Kui and Li Xiaoguang, analysts at the Shanghai-based brokerage, wrote in a report.

“In the next three and six months, it’ll become the most important job for the railway system to overhaul haphazard safety and ensure the safe operations of trains,” the report said.

Railway Networks

Three railway officials, including the head of the Shanghai Railway Bureau, were sacked after the collision and will be investigated, Xinhua reported yesterday.

The collision is the latest setback for China’s bullet-train program. The $34 billion Beijing-Shanghai high-speed rail line, the world’s longest, has suffered major delays from storm-related electrical breakdowns at least three times since it opened on June 30.

China plans to extend its high-speed railway networks to 120,000 kilometers from 91,000 kilometers by 2015 to accelerate urbanization and bolster development in the nation’s underdeveloped regions. Former railway minister Liu Zhijun was fired in February and put under investigation over bribery allegations.

The train accident and “constant malfunctioning” of the Beijing-Shanghai bullet train may damp demand for property along rail lines, Credit Suisse said. Land sales in “several” cities along the new Beijing-Shanghai high-speed railway line surged in 2009 and 2010, analysts including Jinsong Du at Credit Suisse wrote in a report.

Airlines Rally

China’s economy, the world’s second-largest, grew 9.5 percent in the second quarter, slowing from 9.7 percent in the previous three months, as the central bank raised interest rates and banks’ reserve-requirement ratios to stem inflation that quickened in June to the fastest pace in three years.

Airline stocks rallied in Hong Kong on speculation travelers will shun high-speed rail. Air China Ltd., the nation’s largest international carrier, gained 3.6 percent to HK$8.08. China Southern Airlines Co., the biggest carrier by fleet size, advanced 3.4 percent to HK$5.17.

“Airline stocks have already fully priced-in pessimistic expectations,” Zhang Hongbo, an analyst at Citic Securities Co., wrote in a note today. “They are expected to rebound during the July-to-October peak season for air transportation.”

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