China’s Stocks Fall for Second Day, Led by Industrial Companies

Jan. 17 (Bloomberg) -- China’s stocks fell for a second day, led by financial and industrial companies, after valuations reached the highest level since May. Gross domestic product and industrial output data are due to be released tomorrow.

North Navigation Control Technology Co. dropped by the 10 percent daily limit after gaining 64 percent during an eight-day rally. China Life Insurance Co., the nation’s biggest insurer, declined to the lowest level this year after Credit Suisse Group AG cut its recommendation on the stock. China Railway Group Ltd., the nation’s biggest construction company by total assets, slumped 1.8 percent after rallying 13 percent since Dec. 3, when the nation’s benchmark indexes approached four-year lows.

The Shanghai Composite Index dropped 1.1 percent to 2,284.91 at the close, while the CSI 300 Index lost 0.9 percent to 2,552.76. The Shanghai index slid 0.7 percent yesterday on concerns shares are overbought. It rallied 17 percent since Dec. 3 on signs the economy is picking up amid a government push to develop the nation’s urban areas.

“Investors are just finding excuses to take some profits,” said Zhang Gang, a strategist at Central China Securities Holdings Co. in Shanghai. The Shanghai index “won’t fall too much, there’s just some fluctuations around 2,300. We need new factors to drive the gauge higher. For instance, if the data tomorrow are better than estimated, it would boost the market.”

The Shanghai measure traded at 12.9 times reported earnings on Jan. 15, according to data compiled by Bloomberg. Average trading volumes in the Shanghai index were 3.4 percent higher than the 30-day average today. Thirty-day volatility was at 21.6, compared with last year’s average of 17.1.

Tomorrow’s Data

The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong fell 0.5 percent today. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, lost 0.6 percent in New York yesterday.

China’s economy is poised to exit a seven-quarter slowdown as the government rolls out infrastructure projects and limited inflation allows officials hold off from tightening monetary policy.

The National Bureau of Statistics will report tomorrow that gross domestic product expanded 7.8 percent in the fourth quarter from a year earlier, according to the median estimate of 53 economists surveyed by Bloomberg News. That’s up from a three-year low of 7.4 percent in the previous period. Factory output probably rose 10.2 percent in December from a year earlier, up from 10.1 percent in November.

Industrial Stocks

A gauge of industrial companies including railway and satellite-navigation shares in the CSI 300 dropped 1.7 percent, the most among the 10 groups. The index had gained 20 percent since Dec. 4, when the official Xinhua News Agency cited the nation’s new leaders as saying they would promote urban development.

The industrial gauge traded at 15.6 times reported earnings on Jan. 3, the highest level since August 2011, data compiled by Bloomberg show. The ratio was at 14.2 today, while the average multiple for companies on the CSI 300 was at 12.8.

North Navigation slumped 1.32 yuan to 11.86 yuan, its biggest decline since June 1, 2007. China Spacesat Co. also tumbled 10 percent to 15.80 yuan, halting gains of 34 percent over the past five days.

Navigation stocks had rallied since the government announced earlier this year that buses and other transport vehicles should install the domestic Beidou Navigation Satellite System. All tour coaches, long-distance buses and vehicles that transport dangerous articles, ought to install the system, the Xinhua News Agency reported Jan. 15.

Rail Stocks

China Railway Group slid 1.8 percent to 3.23 yuan. China Railway Construction Corp. fell 1.5 percent to 6.11 yuan, paring gains to 12 percent since Dec. 3. The stocks surged over the past month on speculation urban development will boost spending on public transport.

Chinese rail and construction machinery stocks are “yesterday’s heroes, and will not do well as China moves past its great investment boom,” analysts Julian Bu and Zhi Aik Yeo said in a Jan. 14 report.

China Life sank 3 percent to 20.52 yuan. Credit Suisse cut the insurer’s Shanghai- and Hong Kong-listed shares to underperform, citing valuations and a renewed focus on volume. The stock had rallied 20 percent this year before today. Ping An Insurance (Group) Co., China’s second-biggest insurer, fell 1.9 percent to 45.08 yuan.

China Yangtze Power Co. led a measure of utility stocks to the biggest gain among industry groups after saying in a preliminary earnings statement that earnings rose 35 percent last year. The stock added 3.3 percent to 7.22 yuan.

The rally for China’s stocks isn’t over and investors should “buy on dips,” Hao Hong, Hong Kong-based China strategist at Bank of Communications Co., wrote in a note today.

“Consensus has a point that stocks are overbought near term, and beg a consolidation before the next leg up,” Hong said. “But a consolidation is by no means the end of the rally.”

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net