China’s Stocks Decline on FDI Data, Paring This Week’s Gains

China’s stocks fell, paring a third week of gains for the benchmark index, on a report showing a decline in foreign direct investment and concern corporate earnings are deteriorating.

Huaneng Power International Inc. led a retreat among electricity producers after the nation’s power output fell to the lowest level in four months in September. Western Mining Co., China’s fourth-largest maker of zinc concentrate, lost 0.6 percent after the company posted a third-quarter loss. Jiangsu Yanghe Brewery Joint-Stock Co. rose to the highest in two months after the liquor maker said it plans to buy back shares.

The Shanghai Composite Index slid 0.2 percent to 2,128.30 at the close, trimming a weekly gain to 1.1 percent. The measure posted its longest weekly winning stretch since April after Premier Wen Jiabao said the economy has started to stabilize as data including industrial production and retail sales beat forecasts. The CSI 300 Index fell 0.2 percent to 2,332.47.

“The economy is showing signs of recovery but it’s not clear that momentum will pick up,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, which manages $190 million. “Earnings are lackluster. Investors are worried profits may not improve in the fourth quarter.”

The CSI 300 Index fell 0.2 percent to 2,332.47. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong gained 0.5 percent. An index of A shares tracked by Hang Seng Bank Ltd. closed at a discount to the equivalent securities traded in Hong Kong yesterday for the first time since August 2011. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.5 percent in New York yesterday.

FDI Declines

Foreign direct investment fell 6.8 percent from a year earlier to $8.43 billion, the 10th decline in 11 months, the Ministry of Commerce said in Beijing today. Spending in the first nine months of the year dropped 3.8 percent, compared with a drop of 3.4 percent in the first eight months.

The government won’t provide big economic stimulus and a strong rebound in growth is unlikely, said Song Guoqing, an adviser to the People’s Bank of China.

Local-government investment plans probably won’t materialize quickly because they’re reliant on the central government and banks for funding, Song said in a speech in Beijing yesterday.

The Shanghai index has rebounded 6.2 percent since reaching a three-year low on Sept. 26 on expectations regulators will introduce measures to stabilize the market ahead of a once-in-a-decade power transition of the Communist Party in November. The gauge is still down 3.2 percent this year and trades at 10 times estimated earnings for this year, compared with the 17.9 average since Bloomberg began compiling the weekly data in 2006.

Positive Data

The Chinese economy expanded 7.4 percent last quarter from a year earlier, the statistics bureau said yesterday. That matched the median projection of 43 analysts surveyed by Bloomberg. Industrial production increased 9.2 percent last month, rebounding from a three-year low of 8.9 percent in August, and retail sales advanced the most in six months at 14.2 percent, the data showed.

Leading Chinese indicators are turning positive, according to Hao Hong, managing director of research at Bank of Communications, said in a report. The proportion of longer-term loans is increasing, non-bank financing remains robust, M1 and M2 growth is strong, inflation has slipped below 2 percent and housing prices have calmed, he said.

Share Buybacks

A measure of nine utilities in the CSI 300 slid 0.5 percent today, the second-biggest drop among the 10 industry groups.

Huaneng Power, the listed unit of China’s largest power group, fell 1.5 percent to 5.98 yuan. Huadian Power International Corp., the listed unit of China’s fourth-largest power producer, retreated 2.5 percent to 3.45 yuan.

Electricity production was 391 billion kilowatt-hours, the least since 390 billion in May, data from the National Bureau of Statistics showed yesterday in Beijing. The figure was down 11 percent from August and up 1.5 percent from a year ago, according to the data.

Western Mining dropped 0.6 percent to 7.99 yuan. The company posted a net loss of 34.6 million yuan ($5.54 million) for the third quarter of this year, according to a statement.

China’s publicly traded non-financial companies’ profits for the first nine months probably dropped 17 percent from the year-earlier period, almost unchanged from the first half, Li Peng, Huang Xindong and Chen Jianxiang, analysts at Shenyin & Wanguo Securities Co., said in a report this week.

Jiangsu Yanghe rose 1 percent to 129.31 yuan, its highest close since Aug. 22. The liquor maker plans to use as much as 20 percent of its annual profit to buy back shares, according to an exchange statement. The company also plans to invest 3.7 billion yuan in brewery equipment, it said in a separate statement.

Consumer Staples

A gauge of consumer staples stocks in the CSI 300 advanced 3.1 percent this week, the most among industry groups, after companies from Wuliangye Yibin Co. to Anhui Gujing Distillery Co. forecast profit gains.

Thirty-day volatility in the Shanghai Composite was at 19.9 today, compared with this year’s average of 17.2. About 6.7 billion shares changed hands in the gauge, 13 percent lower than the daily average in 2012.

Emerging-market equity funds recorded a sixth week of inflows, taking in $1.5 billion, according to Citigroup Inc., citing EPFR Global. China-focus funds took a “huge portion” of inflows into Asia, raking in $444 million, Citigroup said.

Franklin Templeton Investments is setting up its first fund targeting mostly mainland Chinese stocks after the government expanded a program to attract more foreign investment in the nation’s slumping equities.

The Templeton China Opportunities Fund favors consumer stocks such as liquor producers and pharmaceutical companies, Eddie Chow, Hong Kong-based managing director of Templeton Asset Management, said yesterday in an e-mailed interview. He will jointly manage the fund with Mark Mobius, executive chairman of Templeton Emerging Markets.

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