China Stocks Drop as Valuations Hit Low; Brokerages Drop

Chinese stocks declined for a fourth day, dragging valuations on the benchmark index to their lowest level on record, as brokerages tumbled amid speculation they may cut trading fees.

Sinolink Securities Co. plunged by the 10 percent daily limit and Citic Securities Co., the nation’s largest brokerage by value, headed for its biggest loss in three months. The regulator is talking with brokerages about cutting commissions on transactions by 20 percent, the 21st Century Business Herald reported. Liquor maker Luzhou Laojiao Co. led gains by consumer staples companies, the worst performers this month.

The Shanghai Composite Index dropped 0.5 percent to 1,963.49 at the close, erasing a gain of as much as 0.4 percent. Almost four shares fell for each that rose. The CSI 300 Index retreated 0.6 percent to 2,115.68. The Hang Seng China Enterprises Index rose 0.5 percent in Hong Kong. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.6 percent in New York yesterday.

“Volumes have been very weak in the market and the brokerages get hit the most because this means business will suffer,” said Deng Wenyuan, an analyst at Soochow Securities Co., by phone today in Suzhou. “There’s little confidence in the market.”

Regulatory data showed the number of stock-trading accounts that had transactions last week was the lowest since at least January 2008, excluding weeks that had holidays. The value of shares traded on the Shanghai stock exchange slumped to 33.1 billion yuan ($5.3 billion) on Nov. 26, the least since November 2008 and about a third of the 102 billion yuan daily average over the past five years.

Record Low

Shares on the Shanghai Composite trade at an average 10.8 times reported earnings, the lowest level since at least 1997, according to data compiled by Bloomberg. The stock index has lost 11 percent this year, heading for a third straight year of declines, and closed below 2,000 for the first time since 2009 on Nov. 27 as the nation’s economy slowed for seven quarters.

A gauge tracking financial companies on the CSI 300 slid 1.2 percent, after rising as much as 0.5 percent. Sinolink fell to 12.14 yuan. Citic Securities lost 4.4 percent to 9.80 yuan. Hong Yuan Securities Co. tumbled 9.1 percent to 14.87, capping a six-day, 15 percent drop.

The China Securities Regulatory Commission is talking with fund companies, brokerages and banks about cutting brokerage commissions, 21st Century Business Herald reported, without saying where it got the information.

Trading Volumes

A private fund sold shares in Sinolink today, Wang Zheng, fund manager at Jingxi Investment Management, said by phone today. Jin Yuhang, securities affairs representative of Sinolink, said he didn’t know about a share sale when reached by phone.

Trading volumes in the Shanghai Composite were 19 percent lower than the 30-day average at the close today, according to data compiled by Bloomberg. Thirty-day volatility in the gauge was at 13, compared with this year’s average of 17.

Declines by mainland China-traded equities this year contrast with a rally for the nation’s shares traded in Hong Kong. The Hang Seng China Enterprises Index has jumped 16 percent since Sept. 5 as global investors turned more optimistic on China’s prospects.

Investor Poll

China ranked second when investors were asked which markets will offer the best opportunities over the next year, according to the latest Bloomberg Global Poll. The U.S. came out on top for the eighth straight quarter, according to the poll of investors, analysts and traders who are Bloomberg subscribers.

The Hang Seng China gauge may rise next year to 13,550, or 30 percent higher than yesterday’s close, as the nation’s new leaders introduce measures to bolster growth, according to a Citigroup Inc. report written by Minggao Shen and Ben Wei.

Investor interest in mainland China-traded shares has waned even as data showed signs of a growth recovery in the world’s second-largest economy. Industrial companies’ profit accelerated 20.5 percent in October, while factory output and exports both rose last month by the most since May.

The National Bureau of Statistics and China Federation of Logistics and Purchasing are due to release a manufacturing index for this month on Dec. 1. The Purchasing Managers’ Index probably rose to 50.8 from 50.2 in October, according to the median estimate of 20 economists in a Bloomberg survey. The number of 50 is the dividing line between expansion and contraction.

Liquor Makers

The 14-day relative strength measure for the Shanghai Composite, measuring how rapidly prices have advanced or dropped during a specified time period, was at 30. Readings below 30 indicate it may be poised to rise.

A gauge tracking consumer-staples stocks in the CSI 300 rose 0.4 percent, paring this month’s decline to 13 percent. Luzhou Laojiao advanced 1.8 percent to 33.70 yuan. Jiangsu Yanghe Brewery Joint-Stock Co. added 1 percent to 97 yuan.

Liquor makers tumbled this month after the nation’s quality watchdog found excessive levels of plasticizer in drinks made by JiuGuiJiu Co., which dropped 3.3 percent to 30.18 yuan today, capping a five-day, 37 percent plunge.

An index of health-care companies advanced 0.2 percent, narrowing its loss for the year to 0.2 percent. The measure is the best performer among the 10 industry groups for 2012.

Shijiangzhuang Yiling Pharmaceutical rose 1.6 percent to 20.93 yuan. The stock fell yesterday to its lowest level since it first traded in July 2011. Beijing Tongrentang Co., a manufacturer and retailer of traditional Chinese medicine, gained 2.4 percent to 16.80 yuan.

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