China’s Stocks Fall to Lowest Level Since March 2009 on Earnings

China’s Stocks Fall Most in Week on Earnings Concern
Suning tumbled 8.8 percent to 7.38 yuan, on course for the biggest decline since Jan. 21, 2009. The company said net income will fall by as much as 30 percent to 1.73 billion yuan in the first half. Photographer: Nelson Ching/Bloomberg

China’s stocks fell, dragging down the benchmark index to the lowest level in almost 3 1/2 years, as concern about slumping profits overshadowed speculation the government will introduce stimulus measures for the economy.

ZTE Corp., the second-biggest maker of telecommunications equipment in China, slid 10 percent after estimating first-half net profit dropped up to 80 percent from a year ago. Suning Appliance Co., China’s largest electronics retailer, fell to the lowest since March 2009 after projecting profit dropped as much as 30 percent in the first six months of 2012. BYD Co. plunged to a record low as Yuanta Securities Co. said development of electric vehicles in China won’t be as fast as expected.

“Earnings have been quite bad so don’t expect the market to be up in the near term,” said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai. “I doubt the other companies will release better-than-expected earnings. There’s still hopes for policy loosening but the next rate cut may only come in August at the earliest.”

The Shanghai Composite Index fell 1.7 percent to 2,147.96 at the close, the lowest level since March 13, 2009. The CSI 300 Index retreated 2.1 percent to 2,399.73. The Shenzhen Composite slid 3.6 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, gained 1.2 percent in New York.

The Shanghai Composite has fallen 2.3 percent this year on concern Europe’s debt crisis and China’s property curbs are hurting economic growth. The measure is valued at 9.5 times estimated profit, data compiled by Bloomberg show.

Earnings Concerns

A gauge of telecom companies in the CSI 300 fell 6.2 percent, the most among 10 industry groups. ZTE slid by the daily limit to 11.72 yuan, the lowest close since Jan. 15, 2009. ZTE estimated net income declined to between 154 million yuan and 308 million yuan in the six months ended June 30, from 769.3 million yuan a year earlier.

Suning tumbled 10 percent to 7.28 yuan, the lowest close since March 16, 2009. The company said net income will fall by as much as 30 percent to 1.73 billion yuan in the first half. Net income was 2.47 billion yuan for the same period last year.

Qingdao Haier Co., China’s largest home appliance maker, declined 3.1 percent to 10.80 yuan. The gauge of consumer discretionary companies in the CSI 300 fell 3.5 percent for the second-biggest loss among the industry groups.

Auto dealers are expected to increase incentives and discounts as their inventory rises, leading to a continued fall in vehicle prices, Cheng Xiaodong, head of auto-price monitoring at the National Development and Reform Commission, said in an e-mailed statement. SAIC Motor Corp., China’s biggest automaker, dropped 2.3 percent to 12.20 yuan. FAW Car Co., which makes cars with Volkswagen AG, declined 4.6 percent to 8.88 yuan.

Automakers Slide

BYD, the automaker backed by investor Warren Buffett, slid 10 percent to 17.15 yuan. Some investors may have realized development of electric vehicles in China won’t be as fast as expected, Yuanta Securities Johnny Wong said in a phone interview today.

Publicly traded Chinese companies release their interim earnings reports in July and August. The companies in the Shanghai and Shenzhen stock exchanges are expected to post a 4.2 percent decline in second-quarter profit, according to Haitong Securities Co.

The State Council may hold a meeting as early as July 18 to discuss fiscal and monetary policy direction, the China Securities Journal reported today, citing unidentified analysts. After the meeting, China may announce a series of policy measures to encourage economic stable growth, the report said.


Premier Wen Jiabao said the nation’s economic recovery has yet to gain momentum, boosting speculation the government will increase stimulus measures to avert a deeper slowdown. Wen warned that “difficulties” may persist for a while, the official Xinhua News Agency reported yesterday.

Wen’s comments follow data that showed Asia’s largest economy had the weakest expansion in three years as Europe’s fiscal crisis sapped exports. The government may report foreign direct investment data for June as early as today.

China’s gross domestic product rose 7.6 percent in the second quarter from a year earlier, the statistics bureau said on July 13, the sixth straight slowdown. Industrial production increased at a more moderate pace in June while retail sales growth decelerated, the data showed.

About 5.8 billion shares changed hands in the Shanghai Composite on July 13, 25 percent lower than the daily average this year. Thirty-day volatility in the gauge was at 14.2, the lowest since June 1.

Rate Outlook

China’s central bank may cut interest rates by as much as one percentage point in the coming year to spur lending, the swap market signals, as slowing industrial production and exports cool the economy. Two-year swap rates show traders are expecting the People’s Bank of China to lower the deposit rate as many as four more times from 3 percent, according to data compiled by Bloomberg.

The government cut rates on July 5 for a second time in a month and has lowered the reserve ratio three times since November to bolster growth.

Yonghui Superstores gained 7.1 percent to 23.82 yuan, snapping an eight-day, 19 percent loss. Citic Securities upgraded its recommendation on the supermarket operator to outperform, citing an improving earnings outlook, Zhao Xueqin, an analyst at the brokerage, wrote in a report today.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., increased 1.5 percent to $32.5, cutting its decline last week to 2.6 percent.

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