China's Stocks Fall Most in Month on Industrial Profits, IPOs

  • Shanghai B-share index declines for first time in 14 days
  • China Telecom slides after chairman comes under investigation

China’s stocks fell the most in a month as industrial company profits declined and concern grew a new system for initial public offerings will damp demand for existing equities.

The Shanghai Composite Index slumped 2.6 percent to 3,533.78 at the close, paring a quarterly advance to 16 percent. A gauge of dollar-denominated mainland stocks dropped for the first time in 14 days. Industrial profits declined for a sixth month in November. Chinese lawmakers cleared the way for rules to be changed as early as March to allow a registration system for IPOs. China Telecom Corp. slid in Hong Kong after its chairman became the latest high-ranking executive to be targeted by anti-graft investigators.

“Investors don’t like declining industrial profits and they don’t like ongoing corruption investigations in China,” said Andrew Clarke, director of trading at Mirabaud Asia Ltd. in Hong Kong. “There are plenty of reasons to lighten their load ahead of the new year and there’s no reason to open any new positions. That’s going to exaggerate the down swing in the market.”

The Shanghai Composite is the best-performing major global index this quarter as government intervention to halt a $5 trillion equity rout helped stabilize the stock market. While shares have rebounded, slumping industrial profits are the latest sign authorities are struggling to reduce overcapacity and halt declines in producer prices. Under the new registration system, IPO supply and timing would be decided by companies and the market, rather than regulators.

IPO Reform

The CSI 300 fell 2.9 percent. Hong Kong’s Hang Seng China Enterprises Index slid 1.7 percent, while the Hang Seng Index declined 1 percent.

Financial and industrial companies led declines in mainland trading. Citic Securities Co. and Huatai Securities Co. slid by at least 5.8 percent. Bank of Beijing Co. plunged 4.8 percent, while China Life Insurance Co. slid 3.7 percent. China Shipping Container Lines Co. and China Cosco Holdings Co. both slumped by the 10 percent daily limit.

The Standing Committee of the National People’s Congress passed a resolution to allow the State Council, or cabinet, to make the adjustments to the IPO system, the official Xinhua News Agency reported Sunday on its official microblog.

The change is “slightly negative for the long-term liquidity outlook,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong.

B-Shares Plunge

Industrial profits slipped 1.4 percent to 672.1 billion yuan ($103.8 billion) in November from year-earlier levels, the National Bureau of Statistics said on its website Sunday. Profit for state-owned enterprises tumbled 9.5 percent in the first 11 months, according to a statement on the Ministry of Finance’s website. That compared with a 9.8 percent drop in the first 10 months.

China’s stocks extended losses in the afternoon as the Shanghai B-share index tumbled and concern grew about the impending end to a share-sale ban imposed during summer’s $5 trillion rout, according to Central China Securities Co. and KGI Securities Co. The B-share gauge plunged 7.9 percent, paring this year’s rally to 40 percent this year, compared with a 9.1 percent advance for the A-shares index.

“The sharp decline in B shares dragged A shares lower,” said Clement Cheng, a trader at RBC Investment Management in Hong Kong. “Today is the last trading day for B shares to get settled before year end. Investors took profits in B shares to raise dollars.”

In Hong Kong, China Telecom retreated 1.9 percent after the nation’s anti-graft authority announced an investigation into Chang Xiaobing, the chairman of China Telecom. Under President Xi Jinping, anti-graft probes have snared more than 100,000 officials and spanned across areas such as the military, oil industry and the finance sector.

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