China Stocks Drop as Valuation Concerns Overshadow Profit
China’s stocks fell on concern a rally this month that lifted the benchmark index from a three- year low was excessive, overshadowing growth in industrial companies’ profits.
Anhui Conch Cement Co. (600585) led declines for materials producers, slumping 2.9 percent. Shaanxi Qinling Cement Co. tumbled 6.1 percent, trimming its gain since the Shanghai Composite hit this year’s low on Dec. 3 to 91 percent. Industrial & Commercial Bank of China Ltd. paces losses for financial companies, the worst performer among industry groups in the CSI 300 Index, on speculation banks are hoarding cash to meet year-end capital requirements.
“The market has risen too fast and ahead of economic fundamentals,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “The index will probably peak in January. Earnings for listed companies won’t have explosive growth next year.”
The Shanghai Composite Index (SHCOMP) slid 0.6 percent to 2,205.90 at the close. The measure rose as much as 0.7 percent after a report showed industrial companies’ profits climbed for a third month in November. The index has risen 13 percent since this year’s closing low of 1,959.77 on Dec. 3 as the nation’s new leaders said they would promote urban development as part of economic reforms.
The Shanghai Composite’s 14-day relative strength measure, measuring how rapidly prices have advanced or dropped during a specified time period, was at 73.4 yesterday. Readings above 70 indicate a price may be poised to fall.
The CSI 300 (SHSZ300) lost 0.5 percent to 2,444.59 today, while the Hang Seng China Enterprises Index (HSCEI) gained 0.7 percent as Hong Kong’s markets resumed trading after being shut for two days for holidays. The H-shares index trades at 9.5 times estimated profit, compared with 10.8 for the Shanghai Composite.
While data from the statistics bureau today showed industrial companies’ profit growth accelerating to 22.8 percent last month from a 20.5 percent gain in October, another report modeled on the U.S. Federal Reserve’s Beige Book indicated China’s economic rebound is uneven.
Improvements in retailing, real estate and mining were countered by rising inventories and lower corporate borrowing, CBB International LLC, a New York-based researcher, said in an e-mailed summary of its China Beige Book.
Trading volumes on the Shanghai gauge were 57 percent above the 30-day average today, according to data compiled by Bloomberg. The number of stock-trading accounts that made transactions in yuan-denominated A shares last week increased to 9.6 million from 8.6 million the previous week, the highest level since the week to Sept. 14.
Anhui Conch, China’s biggest cement maker, slid 2.9 percent to 18.18 yuan. The stock has climbed 33 percent over the past four months. Qinling Cement, the biggest gainer in the Shanghai Composite since Dec. 3, tumbled 6.1 percent to 7.l1 yuan. Gansu Qilianshan Cement Group Co. (600720) retreated 2.4 percent to 10.12 yuan.
A gauge of financial stocks in the CSI 300 slumped 0.9 percent today, the most among the 10 industry groups. ICBC, the nation’s biggest listed lender, sank 0.7 percent to 4.05 yuan. China Construction Bank Corp., the second biggest, lost 1.5 percent to 4.51 yuan. China Minsheng Banking Corp., the nation’s first privately owned bank, retreated 1.4 percent to 7.64 yuan.
The seven-day repurchase rate, which measures interbank funding availability, rose 30 basis points to 4.12 percent as of 3:20 p.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center.
“Demand for capital is high in the last few days of this year,” said Song Qiuhong, a bond trader at Foshan Shunde Rural Commercial Bank Co. in Foshan, a city in the southern Guangdong province. “It may decline once the year-end passes.”
The Shanghai index has gained 0.3 percent this year and its thirty-day volatility was at 20 today, compared with this year’s average of 17.
Chinese solar companies rose the most in seven days in New York trading yesterday on prospects the nation’ urbanization plan will bolster new energy demand in 2013. The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., climbed 0.8 percent.
China’s urbanization, which Vice Premier Li Keqiang promoted this month as a driver for economic growth, is expected to spur 40 trillion yuan ($6.4 trillion) of investment by 2020, the Southern Metropolis Daily reported on Dec. 25, citing a draft plan by the nation’s top planning agency. The government confirmed this month a second round of subsidies to more than 100 developers of solar projects as well as feed-in tariffs to support the industry.
“What these programs do in China is creating domestic demand,” Dave Smith, the portfolio manager of the Gabelli Green Fund, said by phone from Purchase, New York yesterday. “It’s positive for stock prices in the short term because they give a sense of confidence that these companies will be generating higher volumes.”
--Zhang Shidong. Editors: Allen Wan, Matthew Oakley
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