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China Stock Index Falls After Holiday on Manufacturing Slowdown

Chinese Stocks Fall After Holiday on Manufacturing, Profit Slump
Investors watch the electronic board at a stock exchange hall in Shenyang. Source: ChinaFotoPress/Getty Images

May 2 (Bloomberg) -- China’s benchmark stock index fell after a three-day holiday as reports showed weaker growth in the nation’s manufacturing and industrial companies’ profits.

Jiangxi Copper Co., the largest producer of the metal, dropped 2.9 percent after forecasting a 50 percent slump in first-half profit. Sany Heavy Industry Co. paced declines for construction-related stocks after reporting lower profit. China Vanke Co. led developers higher after home sales rose in April. Official and private manufacturing data over the past two days showed a weaker expansion, adding to concerns the nation’s economic slowdown is extending into the second quarter.

The Shanghai Composite fell 0.2 percent to 2,174.12 at the close, the lowest level since Dec. 24. The CSI 300 Index advanced 0.1 percent to 2,449.64. China’s financial markets were shut from April 29 through May 1. The Hang Seng China Enterprises Index dropped 0.9 percent today. The Bloomberg China-US 55 Index lost 1.4 percent yesterday.

After the manufacturing reports, “there are expectations the economy will continue sliding,” Liu Guangming, an analyst at Dongxing Securities Co., said today from Beijing. “Earnings lack positive surprises. There’s hardly any positive news to push up stocks today.”

The Shanghai gauge has slumped 11 percent from a Feb. 6 high on concern slowing growth is hurting earnings. The index trades at 11.6 times reported profit, compared with the five-year average of 16.9, according to data compiled by Bloomberg. Trading volumes on the measure were 25 percent below the 30-day average, while 100-day volatility was close to a 13-month high, data showed.

Manufacturing Slowdown

Gauges of energy and material stocks in the CSI 300 declined 1.8 percent, the most among 10 industry groups. Jiangxi Copper plunged 2.9 percent to 20.24 yuan after posting a 32 percent slide in first-quarter profit. China Shenhua Energy Co., the biggest coal producer, slumped 1.1 percent to 20.27 yuan.

The official Purchasing Managers’ Index fell to 50.6, the National Bureau of Statistics and China Federation of Logistics and Purchasing said yesterday, falling short of a 50.7 median forecast of 31 analysts in a Bloomberg News survey and a March reading of 50.9. A private survey by HSBC Holdings Plc and Markit Economics had a final reading of 50.4 for April, down from the preliminary level of 50.5, a report today showed. Readings above 50 signal expansion.

A gauge of new orders showed growth at a five-month low and an output index rose at a weaker pace, according to today’s statement. A measure of new export orders showed a contraction, mirroring a drop reported yesterday by the government.

Profits Slump

China may set an economic growth target of 7 percent for next year to address problems created by rapid expansion under the administration of former Premier Wen Jiabao, Market News International reported, citing an unidentified person familiar with discussions on the State Council. The growth target for this year is 7.5 percent.

Sany Heavy, the biggest maker of construction machinery, slid 4.1 percent to 9.36 yuan after saying first-quarter net profit slumped 44 percent from a year earlier. China Eastern Airlines Corp., the second-biggest domestic carrier, dropped 1.3 percent to 3.02 yuan.

Net income for industrial companies increased 5.3 percent in March from a year earlier to 464.9 billion yuan ($75 billion), down from a 17.2 percent pace in the first two months, the National Bureau of Statistics said on April 27.

Quarterly profit at 53 percent of the companies in the Shanghai index missed estimates, according to data on 225 corporate results compiled by Bloomberg since Feb. 16.

Equities Outlook

A measure of property stocks in the Shanghai gauge rose 1.3 percent, the most among five industry groups. China Vanke, the biggest developer, advanced 2.8 percent to 11.34 yuan. Poly Real Estate Group Co., the second largest, increased 2.1 percent to 11.87 yuan. Chinese home prices added 1 percent in April from the previous month to 10,098 yuan ($1,640) a square meter, according to Soufun Holdings Ltd.

ZTE Corp. led gains for telecom companies, surging 7.6 percent to 12.20 yuan. China’s second-biggest maker of mobile-phone equipment returned to profit in the first three months of this year because of an asset sale, after posting two straight quarterly losses.

“The market slumped earlier on the PMI news and overall corporate earnings weren’t great,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “After reflecting on the negative news, investors started looking at companies that have a better outlook for the second quarter. In the short term, the index will fluctuate. There’s little room for more declines, but also not much reason to drive stocks up either.”

Stock Funds

China’s securities regulator plans to raise the minimum proportion equity funds should have in shares, a move that may drive investments into the worst-performing major Asian stock market in the past year.

A stocks fund will be defined as one that holds more than 80 percent of its assets in equities, according to revised industry rules posted on the China Securities Regulatory Commission website. That compares with 60 percent now.

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., sank 1.5 percent to $37.19 in New York, slumping from a six-week high. Suntech Power Holdings Co., once the world’s largest solar-panel maker, fell the most in two weeks after reporting a 48 percent sales drop.

-- Editors: Allen Wan, Richard Frost

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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

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