China’s Stocks Decline Most in Five Weeks on Earnings Concerns

China’s Stocks Decline Most in Five Weeks on Earnings Concerns
A worker stands among stacks of train carriage wheels at the Maanshan Iron & Steel Co. Ltd. plant in Maanshan, near Nanjing, China. Maanshan Steel declined 4.9 percent to 1.96 yuan, heading for the biggest retreat since November 2010. Photographer: Qilai Shen/Bloomberg

China’s stocks fell, dragging the benchmark index down by the most in five weeks, as companies from Maanshan Iron & Steel Co. to ZTE Corp. reported losses.

Maanshan Steel tumbled the most in 14 months after its third-quarter loss was wider than analysts estimated. ZTE, China’s second-largest maker of telephone equipment, retreated 2 percent to its lowest level since 2008. Hisense Electric Co., the biggest maker of flat-panel televisions, plunged by the 10 percent maximum limit after profit dropped. The National Bureau of Statistics is due to release industrial companies’ September earnings tomorrow. Profits fell 6.2 percent in August.

“The market is still worried about the magnitude of the economic recovery and deterioration of corporate earnings,” said Wu Kan, a fund manager at Dazhong Insurance Co. in Shanghai, which oversees $285 million.

The Shanghai Composite Index dropped 1.7 percent to 2,066.21 at the close, the most since Sept. 20. The CSI 300 Index declined 1.9 percent to 2,247.91. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong retreated 1.3 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.3 percent in New York yesterday.

The Shanghai Composite dropped 2.9 percent this week, capping its first decline in four weeks. The measure, which has slumped 6.1 percent this year, trades at 9.8 times estimated earnings for this year, compared with the 17.8 average since Bloomberg began compiling the weekly data in 2006.

China’s 1,175 investment funds lost 74.9 billion yuan ($12 billion) in the third quarter, as stock prices continued to fall and bond yields rose, the China Securities Journal said, citing TX Investment data.

Low Expectations

Domestic fund managers don’t have “high expectations” about stock performances this quarter as economic recovery is likely to be weak and the economy faces “structural” transformation, the Shanghai Securities News reported today, citing funds’ quarterly reports. Fund managers increased holdings of food, beverage and pharmaceutical stocks in the third quarter, the newspaper said.

A measure of 54 material stocks in the CSI 300 slumped 3.3 percent, the biggest loss among the 10 industry groups.

Maanshan Steel declined 4.4 percent to 1.97 yuan, the biggest retreat since August 2011. The company posted a third-quarter loss of 1.24 billion yuan, compared with a mean estimate for a 653 million yuan loss, according to three analysts in a survey.

Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co., China’s biggest producer of rare earth, tumbled 7 percent to 28.92 yuan for a sixth straight day of declines. Fortune CLSA Securities Ltd. cut its rating to sell from underperform and lowered the share-price estimate to 25 yuan, citing concerns over “destocking pressure” and caution over future prices.

Company Earnings

The rare-earth producer said this week it halted output at some of its smelting units for one month as prices declined.

ZTE dropped 2 percent to 8.77 yuan, closing at its lowest level since November 2008, after saying it swung to a third-quarter net loss of 1.95 billion yuan from a profit of 299.3 million yuan a year earlier.

Hisense Electric dropped 1 yuan to 8.97 yuan. Third-quarter profit declined 9.8 percent from a year earlier, the television maker said late yesterday.

Shenyin & Wanguo Securities Co. cut its earnings-per-share forecasts for the company for this year and 2013 by 12 percent respectively as product prices fell and panel costs rose, Zhou Haichen, an analyst at the brokerage, wrote in a report today.

Corporate Profits

Out of the 937 companies in the Shanghai Composite, 293 have reported third-quarter earnings with an average drop of 3.3 percent from a year earlier, according to data compiled by Bloomberg. That compares with profit growth of 0.6 percent in the second quarter, the data showed. Publicly traded companies are required to release results by the end of the month.

Speculative “hot money” to emerging markets unleashed by quantitative easing in the U.S. and Europe won’t likely flow to the A-share market in large enough levels to push up share prices, the China Securities Journal reported today, citing unidentified analysts.

Net purchases of A shares by qualified foreign institutional investors were 4.6 billion yuan last week, the biggest weekly purchases of the year so far, the Guangzhou Daily reported today, citing market data.

Hot Money

China may see moderate hot money inflows in the fourth quarter, Ting Lu and Xiaojia Zhi, economists at Bank of America Corp. said in a report to clients dated yesterday. They amended their forecast for Chinese reserve-ratio reductions this year to “at most” one cut from two because of the changing direction of capital flows. The People’s Bank of China has cut interest rates twice since early June and lowered reserve ratios three times from last November.

China’s capital flight may decline on the recovering economy, improved risk appetite, better liquidity, easing concern about yuan depreciation, QE3 and policymakers’ efforts to support financial market stability, the economists wrote.

Thirty-day volatility in the Shanghai Composite was at 17.3 today, compared with this year’s average of 17.2. About 7.9 billion shares changed hands in the gauge, 2.6 percent higher than the daily average in 2012.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.9 percent to $37.53 in its second day of gains in New York yesterday.

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