China’s Stocks Fall to Three-Week Low on Economic Growth Concern

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China’s stocks fell, sending the benchmark index to the lowest level in three weeks, as declines in manufacturing gauges added to signs of a deepening economic slowdown.

Aug 3 Shcomp

The Shanghai Composite Index slid 1.1 percent to 3,622.91 at the close, the lowest level since July 8, dragged down by technology companies. PetroChina Co., the biggest stock by market value, sank 4.7 percent. Trading volumes in Shanghai slumped to the worst levels in five months on Friday, while the stocks gauge briefly fell below its 200-day moving average in intraday trading on Monday.

The Shanghai Composite has tumbled 12 percent since July 23 amid concern economic growth is faltering, while a flood of market-support measures fail to revive interest in equities and traders cut their leveraged bets. A private factory gauge released on Monday fell to a two-year low in July, while an official index on Saturday slipped to a five-month low.

“The recent economic data have made investors believe that the market isn’t supported by earnings or fundamentals, particularly when the market is in a downward cycle,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co. “Even after the decline, some stocks are still expensive.”

The Shanghai gauge fell 14 percent in July, posting the biggest monthly loss in six years and the worst drop among 93 global benchmark gauges tracked by Bloomberg. The median stock on mainland bourses trades at 61 times reported earnings, higher than in any of the world’s 10 largest markets, according to data compiled by Bloomberg. That compares with a multiple of 12 in Hong Kong.

Margin Bets

The CSI 300 Index added 0.3 percent on Monday as financial shares rallied. Hong Kong’s Hang Seng China Enterprises Index fell 1.1 percent, while the Hang Seng Index lost 0.9 percent.

Turnover in the Shanghai bourse has more than halved from its peak in June as the government took unprecedented measures to stop a market rout, including allowing hundreds of companies to suspend trading, banning major shareholders from selling and arming a state-run financing vehicle with more than $480 billion to support the market.

Margin traders reduced holdings of shares purchased with borrowed money for a sixth day on Friday, with the outstanding balance of margin debt on the Shanghai Stock Exchange falling to a four-month low of 860 billion yuan ($138.5 billion).

The official Purchasing Managers’ Index slipped from June’s 50.2. The non-manufacturing PMI, a measure of services and construction, was at 53.9 in July, down from 53.8 the previous month. The Caixin final manufacturing PMI slipped to 47.8 in July, the lowest since July 2013, from a preliminary reading of 48.2. Numbers above 50 indicate expansion.

Share Halts

“We have seen no sign of recovery in the manufacturing sector,” said Zhu Haibin, chief China economist at JPMorgan Chase & Co. in Hong Kong. “We may see manufacturing bottom in the third quarter as the government continues and steps up measures to stabilize growth.”

Technology and phone stocks posted the biggest losses in the CSI 300 with declines of at least 3.2 percent. Yonyou Network Technology Co. tumbled 8.8 percent. Hundsun Technologies Inc. slumped 9.3 percent. ZTE Corp. slid 4.9 percent.

A gauge of financial shares in the CSI 300 rose 1.8 percent, led by property developers. Gemdale Corp. jumped 4.6 percent. China Vanke Co. surged 3 percent in Shenzhen.

As of Monday’s close, 517 companies remained halted from trading on the Shanghai and Shenzhen exchanges, or 18 percent of all listings, down from 526 on Friday, Bloomberg data show.

PetroChina Volatility

The share suspensions are a source of frustration for investors, strategists led by Roger Xie at HSBC Holdings Plc wrote in a report dated July 31. Among the mainland companies still suspended, more than 60 percent have been halted for more than a month, they said.

As state-linked funds intervene to prop up the nation’s sinking stocks, PetroChina has transformed into a speculative bet on how much money the government is plowing into equities on any given day. The oil producer’s top weighting in the Shanghai Composite makes it an ideal target for funds trying to influence the broader market.

The result has been a surge in PetroChina’s volatility to the highest level among the world’s 100 biggest companies. The swings are another sign of how state intervention is leading to price distortions in the world’s second-largest equity market.

— With assistance by Shidong Zhang

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