China’s Stocks Fall, Capping Longest Losing Streak Since July

China’s stocks fell for a fourth day, capping the longest stretch of losses in almost three months, after money-market rates jumped and Great Wall Motor Co.’s earnings missed analysts’ estimates.

Great Wall Motor tumbled 10 percent to lead declines for consumer-discretionary companies reliant on economic growth. Kweichow Moutai Co., the nation’s biggest liquor maker by market value, slid the most in five weeks after a newspaper reported high-end liquor prices fell 20 percent. Shanghai International Port (Group) Co. and Shanghai Waigaoqiao Free Trade Zone Development Co. plunged at least 7 percent after rallying more than 90 percent since the start of August.

The Shanghai Composite Index dropped 1.5 percent to 2,132.96 at the close, the lowest level since Sept. 5. The nation’s money rates were poised for the biggest weekly jump since a cash squeeze in June. Investors are cautious this earnings season against a backdrop where the costs of capital are rising, said Dragon Life Insurance Co. fund manager Wu Kan.

“Capital costs are still the focus and stocks usually don’t perform well when they are rising,” said Wu, whose Shanghai-based company Dragon Life oversees $3.3 billion.

The CSI 300 Index lost 1.3 percent to 2,368.56. The Hang Seng China Enterprises Index fell 1.4 percent. The ChiNext index of small companies dropped 2.1 percent for a weekly loss of 6 percent. The Bloomberg China-US Equity Index added 0.5 percent in New York yesterday. Trading volumes on the Shanghai index were 24 percent lower than the 30-day average today, according to data compiled by Bloomberg.

Company Earnings

The Shanghai Composite slumped 2.8 percent this week, the most since the five days ended June 28, after money-market rates jumped and smaller companies slumped on concern valuations were excessive. The index’s four-day loss is the longest streak since July 29.

Great Wall Motor, the maker of China’s best-selling sport utility vehicles, tumbled 10 percent to 43.56 yuan. The company yesterday posted net income of 2.08 billion yuan ($342.1 million) in the third quarter, trailing the median analyst estimate of 2.33 billion yuan compiled by Bloomberg.

Investors should be disappointed with a quarter-on-quarter drop in Great Wall’s margins given an increase in revenue, according to a report from Jefferies Group LLC. The market was expecting better gross margins for the automaker’s H6 SUV, which had been a “margin driver,” the report said.

Kweichow Moutai fell 4.9 percent to 136.73 yuan, the biggest decline since Sept. 17. Wuliangye Yibin Co., China’s second-biggest liquor maker, lost 2.1 percent to 17.47 yuan.

Money Rates

China’s high-end liquor prices fell about 20 percent from a year earlier even as the nation enters the peak season for alcohol purchases, Xi’an Evening News reported. Slumping liquor prices include products made by Moutai and Wuliangye.

Sinovel Wind Group Co., the country’s biggest maker of wind turbines, sank 5.5 percent to 4.66 yuan after posting a loss of 699 million yuan for the first nine months.

Dashang Group Co. climbed 4.7 percent to 29.92 yuan after the retailer said third-quarter profit more than doubled to 230 million yuan. Chinese listed companies are required to finish releasing third-quarter earnings by the end of the month.

Money rates have risen after the central bank refrained from injecting funds through open-market operations. The seven-day repurchase rate increased 1.54 percentage point this week to 5.03 percent as of 3:26 p.m. in Shanghai, according to a daily fixing by the National Interbank Funding Center. That was the biggest weekly advance since the period ended June 23. The rate climbed 24 basis points today. The overnight repo rate rose 1.5 percentage points this week to 4.53 percent.

Port Stocks

“We do not believe that the current rise in the repo rate is being driven by seasonal factors such as the corporate tax payment season,” Zhang Zhiwei, an economist at Nomura Holdings Inc., wrote in a note to clients. “The Chinese government is well aware of such seasonal factors and could have adjusted its liquidity management accordingly to offset such factors and avoid a rise of the repo rate, yet it has allowed repo rates to rise, which we take as a clear policy signal.”

Shanghai Port plunged 7 percent to 4.76 yuan, trimming its gain this year to 81 percent. Shanghai Waigaoqiao tumbled by the 10 percent daily limit to 41.58 yuan after surging 333 percent this year. Companies containing the name Shanghai jumped since August when the Commerce Ministry said the government approved the free-trade zone in the city.

The Shanghai Composite trades at 8.4 times projected profit for the next 12 months, compared with the seven-year average of 15.4, according to data compiled by Bloomberg. The index has rebounded 9.4 percent from its four-year low on June 27 amid speculation the government will take reform measures to sustain long-term economic growth.

The odds of a severe slowdown in China or a credit crisis will fall after a Communist Party summit in November as leaders tackle local-government debt and financial reforms, a Bloomberg News survey indicates. Fifteen of 23 analysts said policies flowing from the meeting will reduce such risks, and a majority said the plans will help China become a high-income economy by 2030.

Download: Brzeski Urges Investor Caution on Chinese Economy


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