China’s stocks fell the most in four months after Societe Generale SA said Chinese corporate profits won’t grow at all this year and the nation’s largest copper producer reported slumping earnings.
Jiangxi Copper Co. slid 5.5 percent after posting an 18 percent drop in net income and Societe Generale said industrial profit for the first two months signaled overly optimistic estimates for earnings. China Citic Bank Corp. led declines for lenders as Aberdeen Asset Management Plc said it is underweight on China on concern about the nation’s non-performing loans. Air China Ltd., the biggest international carrier, lost the most since December after saying passenger growth may slow.
“Investors had expected earnings to be weak but they are still below expectations so stocks are falling,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which manages the equivalent of $2.2 billion. “Moreover, shares have already risen quite a bit this year on monetary easing expectations.”
The Shanghai Composite Index fell 62.3 points, or 2.7 percent, to 2,284.88 at the close, its biggest drop since Nov. 30. The CSI 300 Index declined 2.8 percent to 2,474.90. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, lost 0.3 percent yesterday in New York.
The Shanghai Composite has dropped 7.1 percent from this year’s high on March 2 on concern the world’s second-biggest economy is stalling as the government’s property curbs and tight monetary policies reduce profits. Premier Wen Jiabao announced at the beginning of a national lawmakers’ congress on March 5 an economic growth target of 7.5 percent for this year, down from 8 percent over the past seven years.
No Profit Growth
Four hundred and sixty-two companies in the Shanghai Composite have released annual earnings. They posted profit growth of 17 percent on average, trailing analyst estimates by 4.1 percent, Bloomberg data showed. That compared with an increase of 38 percent in the previous year.
Industrial companies posted their first January-February profit decline since 2009, as net income dropped 5.2 percent from a year earlier to 606 billion yuan ($96 billion), the National Bureau of Statistics said yesterday. That compared with a 34.3 percent gain in the first two months of 2011.
The industrial profit figures suggest 2012 consensus earnings estimates for Hong Kong-listed Chinese companies are “far too optimistic,” Societe Generale strategists Guy Stear and Anthony Lee wrote in a note to clients dated yesterday. Air China dropped 4.3 percent after reporting a worse-than-expected decline in 2011 profit and predicting passenger growth may slow to 4.4 percent this year.
Hard Landing Risk
A gauge of material producers in the CSI 300 fell 4.3 percent, the most among 10 industry groups. Jiangxi Copper plunged 5.5 percent to 24.69 yuan after it reported net income of 2.27 billion yuan in the six months ended Dec. 31, compared with 2.79 billion yuan a year earlier, according to Bloomberg calculations. The profit trailed the 3.04 billion yuan median estimate of 15 analysts surveyed by Bloomberg. Aluminum Corp. of China Ltd. tumbled 5.8 percent to 6.64 yuan.
Angang Steel Co. slid 3.1 percent to 4.39 yuan. The steelmaker posted a net loss of 1.93 billion yuan in the six months ended Dec. 31, compared with a loss of 713 million yuan a year earlier, according to Bloomberg calculations based on Angang Steel’s full-year earnings posted in Shenzhen yesterday.
“The economy is bad, demand is weak, and the upstream is particularly in trouble,” said Tao Dong, chief regional economist at Credit Suisse AG in Hong Kong. “Some companies’ earnings, especially those upstream, are probably going to feel a hard landing instead of a soft landing.”
The Shanghai gauge tumbled a combined 33 percent in 2010 and 2011, making it the worst performer among the world’s 10 biggest markets, as the central bank increased interest rates and lenders’ reserve-requirement ratios to tame inflation.
China may seek to boost the stock market, increase the minimum purchasing price of grains, lower mortgage rates for first-home buyers and stabilize the exchange rate as part of policies to prevent a slowdown from worsening and make consumption a major driver for the economy, according to T.H. Capital LLC.
Vice Premier Wang Qishan said the government will explore building an over-the-counter market and boost the weight of direct financing, the Xinhua News Agency reported yesterday.
Measures of small- and medium-size companies and ChiNext startup firms slumped 4 percent and 5.1 percent respectively in Shenzhen on concern rising share supply will damp valuations.
Aberdeen Asset is underweight on China on concern about the nation’s non-performing loans, Assistant Investment Manager Pruksa Iamthongthong said in an interview today from Singapore.
Chinese residential developers may face a survival test this year, especially smaller players that leveraged to buy land and would now need to cut prices in order to replenish balance sheets, Iamthongthong said.
China Citic Bank declined 2.5 percent to 4.34 yuan, while Huaxia Bank Co. lost 2.5 percent to 10.72 yuan.
The Shanghai Composite has advanced 3.9 percent this quarter, boosting valuations to 9.5 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed.
Thirty-day volatility in the Shanghai Composite was at 17 today, compared with this year’s low of 14.8 on March 13, according to data compiled by Bloomberg. About 6.1 billion shares changed hands in the gauge yesterday, or 31 percent lower than the daily average this year, Bloomberg data showed.