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Most Chinese Stocks Drop on Slowing Economy, Europe Debt

China’s Stocks Drop Most in 3 Weeks on Economy, Europe Concerns
The Shanghai Composite Index fell 33.42 points, or 1.4 percent, to 2,355.17 at the 11:30 a.m. local-time break, heading for its biggest decline since March 29. Photographer: Qilai Shen/Bloomberg

Most Chinese stocks fell as a leading index for the nation’s economy rose at a slower pace in March and political uncertainty in Europe hurt the outlook for Chinese exports to its biggest trading partner.

Jiangxi Copper Co. led a gauge of material producers to the second-biggest drop among industry groups as a political backlash in Europe against budget cuts gained momentum. Risen Energy Co., a maker of solar panels, plunged to a record low after officials tightened standards on the ChiNext gauge of start-up companies. Bank of Beijing Co. and Huaxia Bank Co. gained more than 2 percent after the China Banking Regulatory Commission said the nation’s lenders posted their fastest profit growth in at least four years.

“The economy is on a slowing trend,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “The political uncertainty in Europe will make the sovereign debt crisis a protracted issue. That’ll pressure the market.”

The Shanghai Composite Index added 0.2 point, or less than 0.1 percent, to 2,388.83 at the close, even as 592 stocks dropped and 317 gained. It erased a loss of as much as 1.6 percent. The CSI 300 Index was little changed at 2,604.87. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 2.3 percent in New York yesterday.

Leading Economic Index

The Shanghai index has climbed 8.6 percent this year amid speculation the government will take measures to boost the economy. Stocks in the Shanghai gauge are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

The leading index for China gained 0.8 percent from the previous month to 230.6, the New York-based Conference Board said in a statement today in Beijing, citing a preliminary reading. That compares with a 1 percent rise in February that was revised up from a previously reported 0.8 percent increase.

Today’s data may add pressure on policy makers to take more measures to support expansion after the economy grew the least in almost three years. China’s purchasing managers’ index shrank to a preliminary reading of 49.1 in April, compared with a final 48.3 in March, HSBC Holdings Plc and Markit Economics said yesterday. A number below 50 points to a contraction.

The Leading Economic Index, first published in May 2010, captures turning points in China’s economic cycles if plotted back to 1986, according to the Conference Board.

European Concerns

A measure of material stocks in the CSI 300 fell 0.9 percent today, the second most among the 10 industry groups.

Jiangxi Copper, China’s biggest producer of the metal, dropped 0.4 percent to 25.15 yuan. Tongling Nonferrous Metals Group Co., the second largest, slid 1.7 percent to 20.34 yuan.

The MSCI Asia Pacific Index dropped 0.2 percent today as Dutch Prime Minister Mark Rutte offered to quit after lawmakers split over austerity and French President Nicolas Sarkozy lost the first round of his re-election bid.

A euro-area composite index based on a survey of purchasing managers in the services and manufacturing industries fell to 47.4, a five-month low, from 49.1 in March, London-based Markit Economics said in an initial estimate yesterday.

Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

Smallcaps Fall

Yanzhou Coal Mining Co. lost 2.6 percent to 23.09 yuan. Net income declined 11 percent from a year earlier to 2.2 billion yuan ($349 million), the Shandong-based company said yesterday.

A gauge of ChiNext start-up companies fell 1.3 percent in Shenzhen today after plunging 5.3 percent yesterday.

Risen Energy tumbled 6.8 percent to 9.71 yuan, the lowest close since its listing in September 2010. Beijing Easpring Material Technology Co., a manufacturer of battery chemical, slid by the maximum 10 percent to 8.72 yuan. JiangSu Jin Tong Ling Fans Co. also plunged 10 percent to 8.19 yuan.

Companies listed on the ChiNext board will be delisted if they are censured by the exchange three times over a three-year period, the Shenzhen exchange said in an April 20 statement. The bourse said it won’t support ChiNext companies seeking to regain listing status by means of reverse takeovers, it said. The rules will take effect on May 1.

China’s preliminary PMI data yesterday has added to investor speculation that Chinese monetary authorities will take steps to stimulate the economy, Michael Gayed, chief investment strategist in New York at Pension Partners LLC, which advises on over $150 million in assets, said by phone yesterday.

Rate Outlook

“The market is feeling that China is going to have to start to initiate interest rate cuts and stimulate further,” Gayed said.

The People’s Bank of China has cut the amount of cash lenders must set aside as reserves twice since November to boost lending. Policy makers have kept interest rates on hold since July, while central banks in India and Brazil cut benchmark rates last week.

Financial institutions in China including policy banks, commercial lenders, rural credit cooperatives and foreign banks, earned a combined net income of 1.25 trillion yuan ($198 billion) last year, a gain of 39 percent from a year earlier, the CBRC said in its annual report today.

Bank of Beijing rose 3.7 percent to 10.37 yuan. Huaxia Bank advanced 2.3 percent to 11.33 yuan.

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