China’s Stocks Fall to Two-Week Low as Commodity Producers Slump

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Chinese stocks fell, dragging down the benchmark index to its lowest level this year, as commodity producers tumbled amid a plunge in global metal and oil prices.

Tongling Nonferrous Metals Group Co. and Yunnan Copper Industry Co. lost more than 4 percent as a gauge of material shares dropped 2.2 percent. Copper plunged to a 5 1/2-year low and New York crude retreated 1.4 percent. PetroChina Co. fell 2.8 percent. Industrial & Commercial Bank of China Ltd. led gains by financial shares after a person familiar with the matter said the central bank rolled over a lending facility.

The Shanghai Composite Index fell 0.4 percent to 3,222.44 at the close, with volumes down 49 percent compared with the 30-day average. China’s $5 trillion stock market is losing momentum after a world-beating rally sent the benchmark index to the highest since August 2009.

“Falling commodity prices have been pressuring the market and investors are worried decreasing demand may signal slowing economic growth,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The benchmark index is entering a correction now.”

The more-than 57 percent plunge in crude prices since June is spreading to the metals market, dragging a Bloomberg gauge of commodity prices to the lowest levels in 12 years. The World Bank cut its global growth outlook, citing weak expansions in Europe and China, the world’s biggest consumer of raw materials.

The CSI 300 Index lost 0.3 percent. Hong Kong’s Hang Seng China Enterprises Index dropped 0.5 percent and the Hang Seng Index retreated 0.4 percent.

Fundamental Divergence

The Shanghai Composite has surged 59 percent over the past year, the best performer among 93 global indexes tracked by Bloomberg, amid speculation the government will loosen monetary policy to support economic growth. The index traded at 12.3 times 12-month projected earnings last week, the highest level since May 2011, according to data compiled by Bloomberg.

“There’s a clear divergence between where the A-share market is going and where fundamentals are going: growth is slowing, overcapacity is getting more serious, deflation is worsening, and earnings growth is dropping,” said David Cui, China strategist at Bank of America Corp. “Meanwhile, stock prices have been going up. At a certain point you know this gap is going to probably snap back, but the difficult part is to predict exactly when this will happen.”

The sub-index of material stocks slid the most among the CSI 300’s 10 industry groups today. Jiangxi Copper Co., China’s biggest producer of the metal, retreated 3 percent. Tongling Nonferrous Metals Group Co., the second biggest, tumbled 6.5 percent, while Yunnan Copper Industry Co. dropped 4.4 percent.

China Coal Energy Co. fell 2.3 percent while Yanzhou Coal Mining Co. slumped 6 percent.

IPO Sales

ICBC, the nation’s biggest listed lender, gained 1.5 percent today, while Construction Bank added 2.4 percent. Bank of China Ltd. rose 3.4 percent. China’s listed banks trade at an average 6.3 times earnings, half the multiple of the benchmark index, according to data compiled by Bloomberg.

The People’s Bank of China plans to roll over at least part of a three-month lending facility extended October, the people familiar with the matter said. The 269.5 billion yuan medium-term lending facility was set to expire later this month.

The seven-day repurchase rate, a gauge of funding availability, was little changed at 3.82 percent today as ten companies marketed their initial public offerings. A total of 22 companies including Spring Airlines Co. and Wanda Cinema Line Co. started to sell IPO shares this week, which BOC International said will freeze about 1.4 trillion yuan ($226 billion). Haitong Securities Co. estimated last week the new shares would lock up more than 2 trillion yuan.

Shrinking Bulls

The number of equity bulls in China is shrinking after a rally to four-year highs left shares trading at the world’s biggest premium over analysts’ price targets.

Citigroup Inc. became the latest to cut its outlook on Jan. 12, lowering its rating to neutral from overweight amid concern valuations are turning unattractive. The downgrade follows predictions in the last two weeks from HSBC Holdings Plc, Bocom International Holdings Co. and UBS AG that gains in mainland shares will falter. The Shanghai Composite’s closing level yesterday was 7 percent higher than where analysts tracked by Bloomberg predict the gauge will be in 12 months.

“In the short term, the upside will be limited because the rallies have been too fast and too much,” Chen Li, the chief China equity strategist at UBS, said in a Bloomberg Television interview from Shanghai on Jan. 12.

Overseas investors have become net sellers of mainland shares through the Shanghai-Hong Kong exchange link, while new stock account openings dropped 38 percent from their December high and turnover on the Shanghai exchange declined to a seven-week low yesterday.

Eight out of 12 strategists forecast the Shanghai index will end the year at a level below yesterday’s close, with a median estimate of 3,100, according to data compiled by Bloomberg.