China Stocks Fall to 6-Month Low After Holiday on Economy

China’s stocks fell after a three-day holiday, dragging the benchmark index to a six-month low, as government reports showed industrial production and exports trailed economists’ estimates.

SAIC Motor Corp. led declines for automakers after growth in industrial output slowed to 9.2 percent last month from 9.3 percent in April. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, lost 2.8 percent after it cut product prices. Sany Heavy Industry Co., the biggest Chinese machinery maker, tumbled 5.7 percent.

The Shanghai Composite Index dropped 2.8 percent to 2,148.36 at the close, the lowest level since Dec. 13. The CSI 300 Index declined 3.4 percent to 2,399.94. Mainland markets were shut for the Dragon Boat holiday. Hong Kong’s Hang Seng China Enterprises Index lost 3.3 percent, heading for a bear market, as trading resumed following a one-day holiday.

“May economic data were poor and it looks like the slowdown in China’s economic growth isn’t temporary and may trend down for a while,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “The downward pressure on the market will be big.”

The Shanghai index has fallen 12 percent from this year’s high on Feb. 6 on concern economic growth is slowing and amid speculation regulators will resume initial public offerings after halting them since October. It trades at 8.8 times 12-month estimated earnings, the lowest since Dec. 6, data compiled by Bloomberg showed. Trading volumes in the index were 5.8 percent below the 30-day average today.

Economic Data

The MSCI Emerging Market Index lost 3.2 percent and the Bloomberg China-US Equity Index dropped 2.9 percent when China’s markets were shut. The H-shares index closed June 11 at an eight-month low, dragging its valuation to 1.2 times net assets, the lowest ratio versus the MSCI All-Country World Index since November 2003.

SAIC, China’s largest carmaker, lost 3.9 percent to 14.47 yuan. Great Wall Motor Co., the nation’s biggest maker of SUVs and pickup trucks, slumped 3.4 percent to 34.67 yuan. FAW Car Co., which makes cars in China with Volkswagen AG, tumbled 10 percent to 13.90 yuan.

China’s industrial production compared with a median estimate for a 9.4 percent increase. May exports rose 1 percent from a year earlier, down from 14.7 percent in April, while imports dropped 0.3 percent from a year earlier. The median estimates of analysts were for a 7.4 percent export growth and a 6.6 percent import gain. The reports were released on June 8.

China Caution

The data add pressure on President Xi Jinping and Premier Li Keqiang to shore up growth that unexpectedly slowed to a 7.7 percent rate in the first quarter. While the figures boost the case for easing monetary policy or increasing spending, the government’s room is limited by rising home prices and overcapacity in an economy where lenders’ bad loans have risen for six straight quarters.

“The data has disappointed the market, so investors have become a little more cautious on China,” Robert Aspin, Standard Chartered Plc’s head of global equity investment strategy, said in Singapore on June 11. “We are looking for a bit more clarity in terms of government policies.”

The World Bank cut its global growth forecast for this year to 2.2 percent from 2.4 percent projected in January, the bank said in a report released yesterday in Washington. China’s growth outlook was reduced to 7.7 percent from 8.4 percent, according to the report.

The slowdown in China’s growth may extend into the third quarter, the China Securities Journal said today. Uncertainties over investment growth will increase as urban development may be slower than expected, according to the newspaper.

Easing Stimulus

Baoshan Steel, the listed unit of China’s second-biggest steelmaker, sank 2.8 percent to 4.53 yuan after the company said it cut hot-rolled and cold-rolled product prices for July delivery by 200 yuan per ton.

Sany Heavy retreated 5.7 percent to 8.34 yuan after denying a media report saying it inflated sales of pump trucks and vehicle pumps by 415 million yuan ($67.6 million).

Some foreign investors pulled funds from Chinese equities since Federal Reserve Chairman Ben S. Bernanke said the central bank could ease its stimulus policies should the U.S. employment outlook show sustainable improvement. Investors withdrew $834 million from Chinese stock funds in the week to June 5, Citigroup Inc. said in a June 7 report, citing EPFR Global data.

China’s securities regulator plans to restrict share issuers and major holders from selling their stock below the initial public offering price as part of new rules aimed at cracking down on fraud and protecting investors.

The restrictions will be in place for two years after lock-ups end, according to draft rules the China Securities Regulatory Commission posted on its website on June 7 after the market closed. Issuers must also prepare and disclose plans to stabilize share prices that fall below net asset value within five years of their debut.