China's Stocks Extend Worst Rout Since 2008 on Growth Concerns

  • Official manufacturing gauge falls to three-year low
  • PetroChina, China Life lead declines after earnings disappoint

China Experiencing 'Much Needed Rebalancing:' Armstrong

Chinese stocks extended the steepest monthly selloff since the global financial crisis after an official factory gauge slumped to a three-year low, some of the nation’s largest companies warned of disappointing earnings and traders unwound margin debt.

The Shanghai Composite Index slid 1.8 percent to 2,688.85 at the close, extending its loss this year to 24 percent. PetroChina Co., which has the biggest weighting on the benchmark gauge, dropped after saying annual net income probably fell as much as 70 percent. China Life Insurance Co. declined to a 14-month low after reporting earnings for last year that trailed forecasts. Leveraged bets on Chinese stock exchanges fell for a record 21st day on Friday to the lowest level since the depths of the last year’s rout.

The Shanghai Composite has tumbled the most among global benchmark indexes this year amid concern the economic slowdown and the weakest currency in five years will accelerate record capital outflows. The purchasing managers index dropped to 49.4 in January, a record sixth straight month of deterioration. Most short-term money-market rates fell to their lowest levels in at least a week as the central bank pumped cash into the financial system before a weeklong holiday begins Feb. 8.

“The headline number is a disappointment to the market as output and new orders show no signs of a rebound,” said William Wong, head of sales trading at Shenwan Hongyuan Group Co. in Hong Kong. “Trading this week will remain shallow ahead of the Chinese lunar new year holiday.”

The CSI 300 Index fell 1.5 percent. The Hang Seng Chinese Enterprises Index dropped 1.2 percent in Hong Kong, while the Hang Seng Index retreated for the first time in four days, losing 0.5 percent. Trading volumes in Shanghai were 27 percent below the 30-day average for this time of day.

The official manufacturing gauge’s six months below 50 is the longest stretch of readings below that level in NBS data since the start of 2005. The PMI slumped last month because of weak demand and efforts to reduce overcapacity, the National Bureau of Statistics said in a statement Monday. Indicators for new export orders and imports also decreased from a month earlier.

“Operating conditions continue to deteriorate at a modest pace, while output and employment both contract at faster rates,” said Andrew Sullivan, managing director for sales trading at Haitong International Securities Group in Hong Kong. “The Chinese government will do what it can to try and steer its economy to a rebound. But they face huge issues like state-owned enterprise reform and growing the service sector at a time when cadres are reluctant to act in the face of anti-corruption clampdowns.”

The non-manufacturing PMI for services edged down to 53.5 last month from a 16-month high of 54.4 in December. The Caixin China Manufacturing PMI rose to 48.4 last month from 48.2 in December.

Earnings Concern

A gauge of energy companies in the CSI 300 tumbled 2.8 percent for the biggest loss among 10 industry groups. PetroChina, which cited weaker energy prices for the estimated drop in full-year earnings, also dropped 2.8 percent.

China Life, the sixth biggest weighted stock on the Shanghai Composite, plunged 3.1 percent after the largest Chinese insurer said last year’s net income may have risen as much as 10 percent from 32.2 billion yuan ($4.89 billion) in 2014. That compares with the average profit estimate of 43.5 billion yuan based on 22 analysts surveyed by Bloomberg.

China’s capital outflows jumped in December, with the estimated 2015 total reaching $1 trillion according to a Bloomberg gauge, amid a 6.9 percent economic expansion last year that was the slowest in a quarter century.

The People’s Bank of China auctioned 10 billion yuan ($1.5 billion) of reverse-repurchase agreements on Monday, after using the contracts to inject a net 1.235 trillion yuan in January, the most on record. The seven-day repurchase rate rose 16 basis points to 2.43 percent, while the 14-day rate fell one basis point to 2.81 percent.

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