China Stocks Fall as Refiners Drag Down Shanghai, H-Shrs

China’s benchmark stock index fell before tomorrow’s industrial production data as a slump in energy producers overshadowed gains for financial companies. The Hang Seng China Enterprises Index approached a bear market.

China Petroleum & Chemical Corp. declined 4.8 percent and PetroChina Co. slid 2.2 percent as the nation’s two biggest refiners dragged down the Shanghai Composite Index. They contributed to almost a quarter of the drop in the H-shares gauge, which has fallen 19 percent from the Dec. 2 high after sliding 1.9 percent today. China Citic Bank Corp. surged 10 percent in Shanghai after the lender said it would offer a virtual credit card with Tencent Holdings Ltd.

The Shanghai Composite slipped 0.2 percent to 1,997.69 at the close, while the CSI 300 Index rose 0.3 percent to 2,114.13. The Shanghai index has fallen 5.6 percent this year as an onshore bond default, a weakening yuan and tension between Russia and Ukraine exacerbated worries about the economy. Data this month showed declines in manufacturing and exports, making it more difficult for China to reach the 7.5 percent economic growth target announced at this year’s legislative meetings.

“Bad economic data, no new reforms to stimulate the economy and the psychological impact from the Ukraine crisis are dampening sentiment for stocks,” said Zhang Gang, a strategist at Central China Securities in Shanghai. “There are too many bad news so it has resulted in a trend of declines as investors haven’t seen a bottom yet. It could fall a bit more.”

China’s industrial production probably rose 9.5 percent in the January-February period from a year earlier, based on the median estimate of analysts surveyed by Bloomberg News. Output expanded 9.7 percent in December from a year earlier.

ETF Outflows

The Hang Seng China AH Premium index, a gauge of prices for mainland-traded shares versus those in Hong Kong, gained as much as 2 percent, the most since Feb. 4. The Bloomberg China-US Equity Index dropped 2 percent yesterday.

Withdrawals from U.S.-based Chinese ETFs totaled $87.5 million March 10, the most among 46 nations, bringing this year’s redemption to $380.7 million, according to data compiled by Bloomberg. Redemptions accelerated in March as reports showed growth slowing and the yuan weakening against the dollar.

China Petroleum, known as Sinopec, declined 4.8 percent in Shanghai and 3.6 percent in Hong Kong. PetroChina lost 2.2 percent in Shanghai and 2.2 percent in Hong Kong.

Refiner Profits

China’s weakest economic growth in almost a quarter century is spurring record exports of diesel that threaten the profitability of Asian refiners. The return from making the fuel may average $17.48 a barrel in 2014, 2 percent less than in 2013 and the lowest in four years, according to KBC Energy Economics, a consultant based in Walton-On-Thames, England. China will more than double shipments this year, ICIS-C1 Energy estimates.

Official data over the weekend showed the steepest slide in exports since 2009 and the slowest inflation in 13 months, highlighting the challenges for Premier Li Keqiang in achieving this year’s target of 7.5 percent. Li is due to speak to the media tomorrow when the annual meeting of the National People’s Congress concludes.

China’s central bank will lower lenders’ reserve-requirement ratios by half a percentage point in the second quarter and a further 50 basis points in the third quarter because of increased downside risks for the economy, according to Nomura Holdings Inc.

China Citic Bank surged 10 percent to 5.47 yuan in Shanghai. The lender, Tencent and Zhongan Online Property and Casualty Insurance Co. plan to offer one million Weixin virtual credit cards initially, according to an e-mailed statement. Ltd. said yesterday China Citic Bank will offer one million cards on Alipay wallet next week.

Default Concerns

Bank of Beijing Co., which said last month it planned to work with smartphone maker Xiaomi Corp. on mobile payments, climbed 3.1 percent to 7.29 yuan.

Investor scrutiny of China’s onshore bond market is mounting after Chaori Solar said March 4 it would only be able to pay 4 million yuan ($653,000) of an 89.8 million yuan coupon payment due yesterday. Chaori Solar’s failure to pay has stoked speculation more companies may miss debt deadlines also.

Baoding Tianwei Baobian Electric Co.’s bonds and shares were suspended from trading yesterday after the Chinese electrical equipment maker said it reported losses for a second year running.

“For some investors who have already been deeply worried about a ‘Bear Stearns Moment’ or an imminent ‘Lehman Moment,’ this could be perceived as another snowflake to trigger an avalanche,” Bank of America Corp. economist Lu Ting wrote in a report. “We do see a significant rise in bond and trust defaults, but we see little chance of systematic credit crunch and growth hard landing.”

The yuan has weakened 1.4 percent against the dollar this year, the second-worst performer out of 12 Asian currencies tracked by Bloomberg. The currency slipped for a fourth day, losing 0.1 percent to 6.14 today.

(Corrects time period for China data in fifth paragraph.)
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