Chinese Stocks Fall on Manufacturing Reports Before NPC Meeting

Chinese stocks fell, paring the benchmark index’s biggest weekly gains in a month, after manufacturing reports boosted concern the economic recovery may be losing steam.

China Shenhua Energy Co. and Jiangxi Copper Co. led losses for coal and metal producers as a government report showed the Purchasing Managers’ Index was 50.1 in February,compared with the median economists’ estimate of 50.5. China Life Insurance Co. dropped the most in a week after saying full-year profit probably slumped 40 percent. Shanghai Fosun Pharmaceutical (Group) Co. rose 2.8 percent on speculation earnings of health-care companies are more immune to an economic slowdown.

The Shanghai Composite slid 0.3 percent to 2,359.51 at the close, after falling as much as 1.5 percent and gaining as much as 0.2 percent. The index changed directions at least 10 times before the start of a national lawmakers congress that starts March 5. Ten-day volatility was at 25.24, near the highest since Dec. 25. The CSI 300 Index slid 0.2 percent to 2,668.84.

“The PMI data show the economic recovery is bumpy,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Investors are turning into a more defensive mode by buying health-care stocks.”

The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong fell 0.9 percent today. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.2 percent in New York yesterday.

The Shanghai Composite gained 2 percent this week, adding to a 20 percent climb since a bull-market rally started on Dec. 3. The index trades for 9.7 times projected 12-month earnings, near the lowest since Dec. 24. Trading volumes were 6.9 percent lower than the 30-day average, according to Bloomberg data.

NPC Awaits

China will open its National People’s Congress to set this year’s growth target and discuss economic policies. The congress will also elect new leaders. The government will set a growth target of 7.5 percent for 2013, according to two bank executives and a regulatory official briefed on the matter.

Gauges of energy and material stocks in the CSI 300 dropped 1 percent and 0.2 percent respectively. Shenhua, the biggest coal producer, slid 1.4 percent to 22.64 yuan. Jiangxi Copper, the largest producer, fell 1.4 percent to 24.31 yuan.

The February PMI index was the weakest in five months and down from 50.4 a month earlier, the National Bureau of Statistics and China Federation of Logistics and Purchasing said today. A separate gauge from HSBC Holdings Plc and Markit Economics dropped to a four-month low of 50.4 from 52.3. Readings above 50 indicate expansion.

Bank of America Corp.’s China economist Ting Lu said manufacturing data would be “heavily distorted” by the Chinese Lunar holiday this month. His comments came after HSBC released a preliminary reading of its PMI index on Feb. 25 that also trailed economists’ estimates.

Upcoming Data

Investors will need to watch for data on March 9 for a “clearer picture of the economic pulse” to determine whether policies will be changed, Nomura Holdings Inc. said in a note today. Data on Feb. inflation, industrial production and retail sales are scheduled to be released that day.

The Shanghai Composite will fail to surpass this year’s high reached on Feb. 6 as the government will start to tighten liquidity amid rising property prices and accelerating inflation, Zhou Binglin, an economist at Guosen Securities Co., said in a phone interview from Shenzhen yesterday.

Policy makers will announce measures to rein in the property market soon after the NPC while inflation may accelerate to 3.5 percent in June or July, which may prompt increases in interest rates, he said.

Insurers, Drugmakers

China Life, the biggest insurer, fell 2.9 percent to 18.36 yuan, the biggest loss since Feb. 21, after saying profit probably fell about 40 percent last year on lower investment yields and increased impairment losses. Ping An Insurance (Group) Co., the second biggest, lost 2.4 percent to 45.95 yuan. New China Life Insurance Co. slid 3.8 percent to 26.93 yuan.

A gauge of pharmaceutical stocks advanced 1.8 percent, the most among the 10 industry groups. Shanghai Fosun added 2.8 percent to 11.93 yuan. Jiangsu Hengrui Medicine Co. gained 2.8 percent to 33.86 yuan.

Ping An Bank Co. rose for a fifth day, adding to this week’s gain of 21 percent. It’s scheduled to release earnings on March 7, according to data compiled by Bloomberg. The lender will probably report full-year net income of 13.87 billion yuan ($2.2 billion), according to 11 analyst estimates compiled by Bloomberg. The bank reported profit of 10.28 billion yuan in 2011, when it was named Shenzhen Development Bank Co.

Banks and brokerages led a rally for financial stocks this week with an industry gauge in the CSI 300 jumping 5.4 percent percent, the most among 10 industry groups.