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China Stocks Drop Most in Week as FDI Slump Adds to Economy Risk

Chalco Leads State Stock Rally on Europe Pledge
American depositary receipts of Beijing-based Aluminum Corp., known as Chalco, advanced 3.9 percent to $13.56, the most since Feb. 9. Photographer: Kevin Lee/Bloomberg

China’s stocks fell, driving the benchmark index’s biggest loss in a week, as a slump in foreign direct investment and delays in a Greek aid package boosted concerns the nation’s economic slowdown will accelerate.

Jiangxi Copper Co. and Aluminum Corp. of China Ltd. led declines for metal producers after European officials postponed a decision on a 130-billion euro ($169 billion) bailout for Greece. Cosco Shipping Co., a unit of China’s biggest shipping company, slid 2.9 percent after the commerce ministry said the outlook for foreign investment and trade is “grim.” Huayi Brothers Media Corp. paced gains for media stocks as the government pledged to support the “culture” industry.

“The fundamentals of the economy aren’t good and monetary policy will still be kept relatively tight this year,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “But investors anticipate the government will have measures to support equities. Stocks will be volatile for the moment.”

The Shanghai Composite Index slid 9.84 points, or 0.4 percent, to 2,356.86 at the close, the most since Feb. 7. The CSI 300 Index lost 0.5 percent to 2,536.07. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.9 percent yesterday.

The Shanghai Composite has rebounded 9.7 percent from a Jan. 5 low on speculation the central bank will cut lenders’ reserve-requirement ratios to spur growth. It announced a reduction in reserve ratios on Nov. 30, the first since 2008, after boosting them and interest rates last year to cool inflation.

Investment Slump

Cosco Shipping declined 2.9 percent to 4.65 yuan. China Cosco Holdings Co., the world’s largest operator of dry-bulk ships, slumped 1.3 percent to 5.51 yuan.

Foreign investment fell for the third month in January, commerce ministry data showed. FDI declined 0.3 percent from a year earlier to $9.997 billion, the ministry said in a statement. That followed a 12.7 percent drop in December and a contraction the previous month that was the first since 2009.

The outlook for foreign direct investment in China this year is “grim,” Shen Danyang, spokesman for the commerce ministry, said in Beijing today. The drop in investment adds to drags on growth in the world’s second-biggest economy from slumping home sales and slowing output gains as Premier Wen Jiabao sustains curbs on real estate. The government may extend a monetary policy pause as it assesses whether manufacturing and job gains in the U.S. lead to a trade rebound and inflation moderates after an unexpected acceleration last month.

Jiangxi Copper, China’s biggest producer of the metal, lost 1.1 percent to 26.50 yuan. Chalco, the listed unit of the nation’s biggest maker of the lightweight metal, fell 0.7 percent to 7.24 yuan.

Europe Deadline

Chinese central bank governor Zhou Xiaochuan said yesterday the nation will continue to hold European sovereign debt. The comments echoed Premier Wen, who said on Feb. 14 that China is ready to get “more deeply involved” in helping the region. Exports from the nation, which counts the European Union as its biggest trading partner, fell for the first time in two years in January, Feb. 10 data showed.

While “further considerations are necessary regarding the specific mechanisms to strengthen the surveillance of program implementation,” Europe is set to make “all the necessary decisions” on Feb. 20, Luxembourg Prime Minister Jean-Claude Juncker said in an e-mailed statement after chairing a conference call of finance chiefs late yesterday.

Europe makes up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

‘Culture Industry’

China will encourage listings of “culture industry” companies, according to a five-year government plan published by the state-run Xinhua News Agency. China will also promote mergers and acquisitions in the industry, Xinhua said. The “culture industry” includes publishing, film making, advertising, exhibitions, animation and games, it said.

Huayi Brothers gained 1 percent to 15.17 yuan. Zhejiang Huace Film & TV Co. climbed 3.8 percent to 30.39 yuan. Anhui Xinhua Media Co., a book publisher, advanced 2.1 percent to 11.73 yuan.

China’s so-called blue chips offer “rare” investment values, the China Securities Journal reported today, citing Guo Shuqing, chairman of the China Securities Regulatory Commission.

Stocks Support

Major companies including CSI 300 members may offer average annual returns of about 8 percent with a price-to-earnings ratio of less than 13 times, the report said. Average share prices of Chinese-listed companies are close to those of peers in U.S., Europe, India and Brazil, it said.

Guo has pledged to support stocks since he took office in October. The securities regulator said on Jan. 10 it will “actively” push local pension and housing funds to invest in stocks. The Shanghai Composite slumped 33 percent over the past two years, making it the worst performer among the world’s 10 biggest markets.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., rose 1.1 percent to a four-day high of $39.81. The MSCI Emerging Markets Index has advanced 16 percent this year, compared with a 7.8 percent gain in the MSCI World Index of developed-nation stocks.

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