Chinese companies have dropped out of the ranks of the world’s 10 biggest stocks by market value for the first time since 2006 amid a cash crunch, slower growth and the biggest U.S. stock rally in a decade.
PetroChina Co., the state oil producer that was the world’s sixth-biggest company in May, lost $35 billion in market value this month to $214 billion, dropping to 12th, according to data compiled by Bloomberg based on closing prices yesterday. Industrial & Commercial Bank of China Ltd. fell four places to 13th after losing $28 billion. All of the 10 largest stocks are from the U.S. after Johnson & Johnson, the top maker of health-care products, and Wells Fargo & Co. overtook the Chinese firms.
Chinese shares are underperforming U.S. equities by the most since 1998 as the American housing and jobs markets improve. Stocks in the world’s second-largest economy, which climbed 345 percent over the past decade and accounted for half of the world’s top 10 in 2007, are falling as the country struggles to develop a consumer market while the government tries to clamp down on a credit boom amid concern that bad loans and bank failures will deepen the slowdown.
“Investors are looking at the U.S. because there are actually signs of growth, versus China where it’s exactly the opposite,” Wayne Lin, a money manager at Baltimore-based Legg Mason Inc., which oversees about $654 billion in assets, said in telephone interview yesterday. “What you see is really the growth expectations flipping.”
The Shanghai Composite Index of domestic shares fell 0.1 percent to a four-year low today amid concern the government’s curb on credit expansion may damp economic growth. PetroChina rose 0.3 percent in Hong Kong, while ICBC increased 1.3 percent.
The MSCI China Index, which tracks shares trading in Hong Kong, has lost 15 percent this year, after more than quadrupling from the end of 2002 to the end of last year.
The Standard & Poor’s 500 index added 0.9 percent as of 11:04 a.m. in New York. It has advanced 13 percent this year, outperforming the Chinese measure by the most for any first half in fifteen years. The U.S. benchmark has climbed 139 percent since March 2009, the biggest advance since the 1990s technology bubble.
PetroChina, the most valuable company in the world as recently as March 2010, lost 28 percent this year in Hong Kong trading through yesterday, wiping out $51 billion in value. The company posted an 8 percent decline in first-quarter earnings, its fourth straight drop, as demand fell for oil products. ICBC, the biggest Chinese lender, has tumbled 14 percent this month.
The seven-day repurchase rate, a gauge of interbank funding availability, jumped to a record high of 12.45 percent on June 20 before falling to 7.3 percent yesterday. It is still almost double this year’s average of 3.8 percent.
“We have had a long-standing concern over balance sheet quality of Chinese banks,” Derrick Irwin, a Boston-based emerging markets money manager at Wells Capital Management, which oversees about $342 billion, said in an e-mail. “If liquidity continues to be tight and growth continues to slow, the effects are difficult to predict.”
Fitch Ratings Ltd. estimates China’s total credit, including off-balance-sheet loans, swelled to 198 percent of gross domestic product in 2012 from 125 percent four years earlier. That exceeded the growth seen before the banking crises in Japan and South Korea in the 1990s, according to Fitch.
Goldman Sachs Group Inc. and China International Capital Capital Corp. have cut growth projections for China this year to 7.4 percent, below the government’s 7.5 percent goal. That would be the slowest expansion since 1990 and the first time that the government misses its target since 1998.
China’s economic growth slowed to 7.7 percent in the first quarter, from an average of 10 percent annual growth rate over the last decade, as record loan growth failed to boost productivity.
“You had a credit binge of an unprecedented degree in China,” Ruchir Sharma, the managing director and head of emerging markets at Morgan Stanley Investment Management, said on Bloomberg Radio’s “Bloomberg Surveillance” with Tom Keene and Sara Eisen. “The state-owned companies in China have become too big and they are sort of slow-witted giants.”
Frank Tian, an investment manager at Aberdeen Asset Management, which oversees about $322 billion worldwide, said the recent selloff in Chinese stocks has created buying opportunities. While banks may suffer as their loan quality deteriorates, PetroChina will benefit from demand for energy and the government loosening controls on fuel prices, Tian said.
PetroChina’s market value was just $2.2 billion below that of International Business Machines Corp. and $3.8 billion less than Wells Fargo, meaning the rankings could shift again with any rally in Chinese equities.
Expansion in the U.S. accelerated to 1.8 percent in the first quarter, according to revised data released yesterday, from 0.4 percent in the fourth quarter. Consumer spending rose 2.6 percent in the first three months, the fastest in two years.
Federal Reserve Chairman Ben S. Bernanke said last week the central bank may slow its quantitative-easing stimulus program this year if economic growth is in line with projections.
Exxon Mobil, the world’s largest oil producer, has gained 3.8 percent this year, overtaking Apple Inc. as the biggest company in the world with a market value of $398 billion. That is more than the size of Thailand’s economy, data compiled by Bloomberg show.
Johnson & Johnson gained 24 percent this year as first-quarter earnings excluding one-time items beat forecasts.
The top 10 companies include Google Inc., Microsoft Corp., Berkshire Hathaway Inc., Wal-Mart Stores Inc., General Electric Co. and Chevron Corp. Wells Fargo, with a market capitalization of $218 billion, became the world’s most valuable bank and 10th biggest company.
Chinese companies made up five of the world’s 10 biggest at the peak of the stock market bubble in October 2007. State-owned enterprises PetroChina, China Mobile Ltd., China Petroleum & Chemical Corp. and China Construction Bank Corp. were all included in the list. China Mobile’s market capitalization has shrunk to $200 billion from $405 billion, Bloomberg data show.
Premier Li Keqiang, who took office in March, has pledged to open the economy and strip power from the government as it turns away from an export-led growth model. While the changes will benefit the economy in the long run, it may depress growth in the short term, according to Steven Sun, a Hong Kong-based China equity strategist at HSBC Holdings Plc.
“The market will continue to struggle,” Sun said in an interview on Bloomberg Television. “The economic challenges are greater than in 2008 and the policy choices are fewer.”