China Stocks Fall to 3-Month Low on Health-Care Shares

Chinese stocks fell to a three-month low as health-care companies slumped and shares of smaller companies dropped on speculation financing costs will increase.

Kangmei Pharmaceutical Co. sank 4.8 percent, leading the drop by health-care companies, the nation’s best-performing stocks this year. The ChiNext index of start-up companies in Shenzhen tumbled 3.6 percent after the central bank sold repurchase agreements to remove funds from the money market. China Vanke Co. led gains among developers as reports from Macquarie Group Ltd. and BNP Paribas SA eased concerns over curbs on property prices.

The Shanghai Composite Index dropped 0.3 percent to 2,227.74 at the close, the lowest level since Dec. 27. The gauge’s trading volumes were 19 percent lower than the 30-day average today, while 10-day volatility sank to a two-week low of 16.4, according to data compiled by Bloomberg. Markets will be closed on April 4-5 for holidays.

“It’s a sector rotation as investors sell outperformers like pharmaceutical stocks and buy laggards,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Trading is a bit light ahead of holidays and also investors are waiting for the release of first-quarter earnings.”

Publicly traded companies in China are required to release annual and first-quarter reports by the end of April. The 525 companies in the Shanghai Composite that have released 2012 earnings reported average profit growth of 3.8 percent, down from 14 percent a year earlier, data compiled by Bloomberg show.

Lower Valuations

The Shanghai index slumped 8.5 percent from a Feb. 6 high to yesterday amid concern steps to cool property prices will drag on economic growth and as company earnings trailed estimates. Valuations on the gauge sank yesterday to 9.1 times projected 12-month earnings, the lowest level since Dec. 13 and less than the seven-year average of 15.8, according to data compiled by Bloomberg.

The CSI 300 Index sank 0.3 percent to 2,486.39, a fourth day of declines. Hong Kong’s Hang Seng China Enterprises Index lost 0.8 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, fell 1 percent in New York.

A measure of health-care stocks in the CSI 300 tumbled 3.9 percent, the biggest loss among 10 industry groups. The gauge is still up 17 percent this year, making it the best-performing sub-index. It’s valued at 21.9 times projections for 12-month earnings, more than double the CSI 300’s 9.8 times.

Drug Makers

Kangmei Pharmaceutical sank 4.8 percent to 17.02 yuan. Beijing SL Pharmaceutical Co. tumbled 9.1 percent to 56 yuan. Zhejiang Hisun Pharmaceutical Co. lost 4.4 percent to 14.27 yuan.

Pharmaceutical stocks rose too much and valuations are high now, Li Ying, an analyst at Capital Securities, said in a phone interview in Shanghai.

Among companies with smaller market capitalizations, Anhui Shengyun Machinery Co. tumbled 10 percent to 20.06 yuan, its biggest loss since March 12. Siasun Robot & Automation Co. slumped 10 percent to 29.88 yuan. The two stocks posted the biggest declines in the ChiNext index.

The People’s Bank of China sold 30 billion yuan ($4.8 billion) of 28-day repurchase agreements today, the central bank said in a statement today, draining money from the financial system.

A gauge of property stocks in the Shanghai Composite climbed 1.2 percent, the most of five sub-indexes. The gauge has lost 9.3 percent this year, the Shanghai measure’s worst-performing industry. Vanke, China’s largest publicly traded developer, added 1.8 percent to 11.20 yuan, while Poly Real Estate Group Co. gained 1.4 percent to 11.99 yuan.

Policy Overhang

The Shanghai property index rose 0.9 percent yesterday after China’s largest cities unveiled rules on home purchases that Credit Suisse Group AG said were milder than expected. The measures announced were “far more benign” than anticipated, Wee Liat Lee and Ronney Cheung, analysts at BNP Paribas, wrote in a report dated today.

No new measures are expected over the next six months, removing a policy overhang on the property industry, Macquarie Group Ltd. analysts wrote in a report dated yesterday.

Anhui Conch Cement Co., China’s biggest cement maker, jumped 3.8 percent to 17.96 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., surged 7.6 percent to 14.67 yuan.

Cement prices rose 1.4 percent from a week earlier last week and price gains have taken hold before the peak season for investment, Wang Liyan, an analyst at Guotai Junan Securities Co., wrote in a report dated March 31.

GD Midea Holding Co., China’s second-biggest publicly traded appliance maker climbed by the 10 percent daily limit to 11.11 yuan. The stock matched yesterday’s 10 percent surge after the household appliance maker’s parent announced plans to buy out the listed company.

The iShares FTSE China 25 Index Fund, the largest Chinese exchange-traded fund in the U.S., dropped 1.2 percent to $36.48 yesterday, after losing 8.7 percent in the first quarter.