China Stocks in Hong Kong Drop Most in a Month on Profit Concern

Updated on
  • Tsingtao Brewery, Jiangxi Copper report falling earnings
  • UBS cuts forecast for China's 2016 growth rate to 6.2%

Chinese stocks in Hong Kong dropped by the most in a month as investors weighed declining earnings from Tsingtao Brewery Co. to Jiangxi Copper Co. and UBS Group AG cut its forecast for the nation’s growth.

The Hang Seng China Enterprises Index retreated 1.5 percent to 10,558.47, the largest loss since Sept. 29. Tsingtao Brewery sank 4.6 percent to lead losses on the gauge. The Shanghai Composite Index dropped 1.7 percent to 3,375.20. Sixty-nine percent of Shanghai-listed companies that have reported third-quarter results so far have missed analyst estimates, versus 50 percent for the MSCI Emerging Markets Index.

“Earnings are looking pretty bad, particularly companies in traditional industries,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. He’s keeping his holdings unchanged. “There won’t be any pickup in earnings through the year, so investors have been focusing on thematic investment on smaller companies.”

UBS lowered its forecast for China’s 2016 economic growth to 6.2 percent from 6.5 percent, while the Westpac-MNI China Consumer Sentiment Indicator showed confidence in the economy sank to a record low this month. The Shanghai Composite has rebounded 11 percent in October, after four straight months of losses, as investors lifted leveraged bets to a two-month high and the government cut borrowing costs to bolster the economy.

Earnings Decline

The CSI 300 Index dropped 1.9 percent, while the Hang Seng Index slid 0.8 percent. Tsingtao Brewery fell the most since Sept. 1 in Hong Kong after saying third-quarter profit declined 29 percent from a year earlier. Jiangxi Copper Co., China’s biggest producer of the metal, fell 1.7 percent after net income decreased 71 percent in the third quarter.

Gauges of technology and health-care stocks on the CSI 300 lost at least 2.3 percent, the biggest losers among industry groups. Hundsun Technologies Inc. slumped 6.5 percent, Lepu Medical Technology (Beijing) Co. slumped 7.7 percent, while Aier Eye Hospital Group Co. retreated 5 percent.

China’s mutual funds posted record combined losses of 650.3 billion yuan ($102 billion) in the third quarter, the Securities Times reported, citing fund reports. The Shanghai gauge plunged 29 percent during the period, the biggest decline since 2008, as traders cut margin debt by the most ever.

Rising Debt

Leveraged investors increased holdings of shares purchased with borrowed money for a fourth day on Tuesday, with the outstanding balance of margin debt on the Shanghai Stock Exchange rising to 628 billion yuan.

With a preliminary reading of the manufacturing industry scrapped this month by Markit Economics and Caixin Media, analysts must search a bit harder for the pulse of the world’s second-largest economy. Some early signs suggest stabilization.

Domestically compiled gauges of manufacturing and services improved in October, while an index based on search-engine data for small and medium-sized businesses weakened slightly. They come before official Purchasing Managers’ Indexes for manufacturing and services, both due Sunday.

— With assistance by Shidong Zhang

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