China’s Stocks Fall After Manufacturing Data Signals Contraction

China’s stocks fell for the fourth time in five days after a manufacturing gauge signaled a contraction and concern grew that new share sales will drain funds from existing equities.

XJ Electric Co. and China First Heavy Industries Co. slid at least 1 percent. China Citic Bank Corp. and Huaxia Bank Co. led declines for lenders. Liquor maker Jiangsu Yanghe Brewery Joint-Stock Co. jumped 10 percent after sales declines slowed.

The Shanghai Composite Index fell 0.3 percent to 2,067.38 at the close. A preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was 48.3 in April, matching analysts’ estimates. It was below the level of 50 that’s the dividing line between expansion and contraction. The China Securities Regulatory Commission posted initial public offering prospectuses for 19 companies on its website yesterday, bringing the total number to 65 since January.

“The preliminary PMI data indicates the economic fundamentals aren’t improving and worsening to some extent,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “The floodgate of IPOs has already been opened and new shares will be coming. The market will be under pressure.”

The CSI 300 Index retreated 0.1 percent to 2,194.67 today, while the Hang Seng China Enterprises Index slid 1.3 percent. The Bloomberg China-US 55 Index added 0.8 percent yesterday.

Flash PMI

The Shanghai Composite, down 2.3 percent this year, is valued at 7.6 times 12-month projected earnings, compared with the five-year average multiple of 12, according to data compiled by Bloomberg. Trading volumes in the index were 27 percent below the 30-day average today.

Power equipment maker XJ Electric slumped 2 percent. China First Heavy fell 1 percent. Citic Bank declined 1.4 percent while Huaxia Bank lost 1.2 percent.

The manufacturing report, known as the Flash PMI, rose from March’s final figure of 48. On May 1, the National Bureau of Statistics and China Federation of Logistics and Purchasing will publish their own survey of purchasing managers at about 3,000 manufacturing companies. The official gauge’s March reading was 50.3, after an eight-month low of 50.2 in February.

“We do not believe that this uptick in the HSBC PMI signals any sort of turning point for the economy and continue to believe that growth momentum is on a downtrend,” Zhang Zhiwei, economist at Nomura Holdings Inc., wrote in a note.

A sub-index of consumer-staples companies advanced 0.9 percent, the only gainer among the CSI 300’s 10 industry groups.

Jiangsu Yanghe Brewery surged 10 percent to 57.30 yuan, the highest close since June 21. The liquor maker said first-quarter sales decreased 10 percent. The sales decline slowed from a drop of 40 percent in the fourth quarter and 22 percent in the third quarter, Huang Wei, an analyst at Citic Securities Co., wrote in a report today.

Kweichow Moutai Co., China’s biggest liquor maker, added 2.3 percent while Wuliangye Yibin Co., the second largest, rose 3.6 percent.

— With assistance by Shidong Zhang

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