Chinese Stocks Decline Most in Six Weeks on Earnings Concerns

China’s Stocks Drop to 2009 Low as Slowdown Spurs Profit Concern
Sinopec lost 0.8 percent to 5.97 yuan. The company’s first-half net income fell 41 percent from a year earlier to 24.5 billion yuan ($3.9 billion), the company said in a statement yesterday. Photographer: Jerome Favre/Bloomberg

China’s stocks tumbled the most in six weeks as weaker profit from China Petroleum & Chemical Corp. to Haitong Securities Co. underscored concern that the nation’s economic slowdown is deepening.

China Petroleum, Asia’s biggest oil refiner and also known as Sinopec, slid 1.8 percent after posting the lowest half-year profit since 2008. Haitong plunged 5.2 percent, pacing losses by brokerages, after saying six-month profit declined. Xinjiang Goldwind Science & Technology Co., the country’s second-largest maker of wind turbines, dropped to its lowest level on record after reporting first-half profit slumped 83 percent.

“Investors are becoming more worried about earnings for this quarter after the poor performance of the first half,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Government tools to boost the economy are limited: policy makers could cut interest rates and bank reserve ratios but they’re worried that would spur inflation.”

The Shanghai Composite Index sank 1.7 percent to 2,055.71 at the close, the lowest level since Feb. 2, 2009. The CSI 300 Index declined 2.1 percent to 2,228.20. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong retreated 1.5 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, fell 0.2 percent in New York on Aug. 24.

Inspection Tour

The Shanghai Composite slumped 1.1 percent last week as a report from HSBC Holdings Plc and Markit Economics showed manufacturing may be contracting at a faster pace this month. The index has fallen 6.5 percent this year, dragging down estimated earnings to 9.3 times, compared with the average of 17.4 since Bloomberg began compiling the data in 2006.

Premier Wen Jiabao urged extra measures to support exports and help meet economic targets as evidence mounts that the nation’s slowdown is deepening. Industrial companies’ profits fell in July by the most this year, a government report showed today.

“The third quarter is a crucial period for realizing full-year targets on export growth,” Wen said during an inspection tour of Guangdong, the nation’s biggest exporting province, the official Xinhua News Agency said Aug. 25. “Facing the current difficulties, China should substantially improve the environment for companies’ operation and improve companies’ confidence.”

Wen’s speech suggests the nation’s export performance may have remained weak or worsened in August, Zhang Zhiwei, chief China economist at Nomura Holdings Inc., said in a note today.

Earnings Decline

Sinopec lost 1.8 percent to 5.91 yuan. The company’s first-half net income fell 41 percent from a year earlier to 24.5 billion yuan ($3.9 billion), the company said in a statement yesterday.

Haitong Securities, China’s second-largest brokerage by market value, slid 5.2 percent to 8.07 yuan after the brokerage said first-half profit dropped 9.4 percent to 2 billion yuan from a year earlier.

GF Securities Co., the third biggest, tumbled by the 10 percent daily limit to 11.04 yuan. Some 905.2 million shares in the company became tradable today, accounting for 15.29 percent of the total stock, GF Securities said on Aug. 23.

Goldwind retreated 2.2 percent to 5.67 yuan, the lowest since the stock listed in December 2007. Net income fell to about 72 million yuan in the first half from 425 million yuan a year earlier. Goldwind expects profit to decline at least 50 percent in the first nine months from a year earlier.

‘Get Worse’

“The situation in China has gone beyond a soft landing already, and the next stage is that things will continue to get worse,” Michael Shaoul, the chairman of Marketfield Asset Management in New York, said by phone on Aug. 24. “The move in local equity markets signals that the actual corporate earnings are really deteriorating there.”

Chinese industrial companies’ profits fell 5.4 percent in July from a year earlier to 366.8 billion yuan, the National Bureau of Statistics said today, compared with a 1.7 percent decline in June. Profits in the first seven months of the year dropped 2.7 percent, the bureau said, after a 2.2 percent decline in the first half.

Thirty-day volatility in the Shanghai Composite was at 12.1 today, compared with this year’s average of 17.2. About 6 billion shares changed hands in the gauge today, 23 percent lower than the daily average this year.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 1.4 percent last week to $34.01.

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