Chinese Stocks Sink to Five-Month Low as Economic Concern Mounts

Chinese stocks fell, with a gauge of mainland companies traded in Hong Kong sliding to a five-month low, amid concern an economic slowdown will hurt earnings.

China Coal Energy Co., the nation’s second-largest coal producer, dropped 2 percent in Hong Kong after saying 2013 profit probably declined as much as 65 percent. Anhui Conch Cement Co., the country’s biggest coal producer, sank 5 percent. Gains in all eight companies trading for the first time today in Shenzhen triggered halts in their shares.

The Hang Seng China Enterprises Index lost 2.2 percent to 9,792.58 at the close in Hong Kong, taking its drop this year to 9.5 percent and falling the lowest level since Aug. 28. The Shanghai Composite Index slid 1 percent to 2,033.30. Factory output may shrink this month, a preliminary survey from HSBC Holdings Plc and Markit Economics indicated last week, as the People’s Bank of China injected more funds into the financial system to ease a cash shortage.

“The weakness in the manufacturing PMI index is spurring fresh doubts over the economy and we are concerned growth will lose steam in coming months,” said Wu Kan, a money manager at Dragon Life Insurance Co., which oversees about $3.3 billion. “Speculation on IPO shares has diverted some funds from existing stocks, driving down A shares.”

Trading volumes in the Shanghai gauge were 17 percent above the 30-day average today, according to data compiled by Bloomberg. The CSI 300 Index dropped 1.3 percent to 2,215.92. The Bloomberg China-US Equity Index, the measure of the most-traded Chinese companies listed in New York, fell 2.4 percent in New York on Jan. 24. China’s markets will be shut from Jan. 31 to Feb. 6 for the Lunar New Year holiday.

Debt Risk

Credit traders have taken out the most protection on China’s debt in 14 months amid speculation a 3 billion-yuan ($496 million) trust product distributed by the nation’s biggest lender would fail to repay holders this week. The net notional amount of credit-default swaps outstanding on Chinese sovereign bonds totaled $9.125 billion Jan. 17, the most since November 2012, according to weekly figures published by Depository Trust & Clearing Corp.

China Credit Trust Co. said today it reached an agreement to restructure the high-yield product, including a potential investment. The two-line statement didn’t identify the source of funds, or say whether investors would get their money back.

China Coal sank 2 percent to HK$3.93, its lowest close since July 4. Full-year net income dropped by 55 percent to 65 percent from a year earlier because of falling coal prices and government effort to reduce reliance on the fuel, according to an exchange statement. The shares fell 0.2 percent to 4.39 yuan in Shanghai.

China Shenhua Energy Co., the nation’s biggest coal producer, slumped 3.3 percent to HK$20.55. Yanzhou Coal Mining Co. dropped 1.8 percent to HK$5.99.

Annual Losses

China’s banking regulator ordered its regional offices to increase scrutiny of credit risks in the coal-mining industry, said two people with knowledge of the matter, signaling government concern over possible defaults.

Energy companies have led declines in mainland markets this year, with a gauge of coal and oil producers sinking 7.4 percent, this most among the CSI 300’s 10 industry groups.

Anhui Conch slid 5 percent to HK$29.50, its biggest loss in three weeks, and fell 5.4 percent to 15.69 yuan in Shanghai.

The Shanghai index has lost 3.9 percent this year, extending 2013’s 6.75 percent retreat. The gauge trades at 7.6 times 12-month projected earnings, after reaching the lowest level on record last week, data compiled by Bloomberg show.

Beijing Kingee Culture Development Co. and Guangdong East Power Co. were among the new listings halted in Shenzhen after rising by the 44 percent limit from their IPO prices.

Debut Trade

Another nine companies including Shaanxi Coal Industry Co. start trading tomorrow for the first time. Shaanxi Coal, the third-largest producer of the fuel, will debut in Shanghai after raising 4 billion yuan ($661 million) from its IPO.

China warned the U.S. of “consequences” after the Securities & Exchange Commission barred the four largest accounting firms from conducting audits of U.S.-listed Chinese companies. The decision to ban the Chinese affiliates of the accounting firms for six months ignored China’s efforts and progress made on cross-border regulatory cooperation, the China Securities Regulatory Commission said.

The ban stands to undermine a pickup in initial share sales by Chinese companies in New York. The ruling will probably push Chinese companies to opt for a listing in Hong Kong instead of New York, said Bruno del Ama, chief executive officer of Global X Funds.

— With assistance by Shidong Zhang

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