China's Stocks Drop Most in Two Weeks as Slowdown Hurts Profits

  • PetroChina, Anhui Conch slide after posting earnings declines
  • Hang Seng China index heads for biggest loss in a month

Inside China's Positive Economic Outlook

China’s stocks fell the most in two weeks as the slowing economy and slumping commodity prices dragged down profits of some of the nation’s largest companies including PetroChina Co.

The Shanghai Composite Index slid 1.6 percent, led by energy, material and financial companies. PetroChina declined for a fourth day after posting its weakest annual profit since 1999 and crude oil extended its retreat below $40 a barrel. Citic Securities Co. paced losses for brokerages after China International Capital Corp. cut its 2016 profit estimates.

Chinese earnings, especially those of industrial companies, won’t pick up unless economic growth regains momentum, according to Xufunds Investment Management Co. The most recent data show industrial companies’ profits declined 4.7 percent in December. The nation’s monetary and fiscal stimulus have yet to spur a growth rebound, based on the earliest private economic indicators for March.

“The old economy is still in the doldrums,” said Wang Chen, a partner with Xufunds Investment in Shanghai. “Unless the economy picks up the rest of the year, earnings won’t see improvement.”

The Shanghai Composite closed below 3,000 for the second time this week at 2,960.97. Even with a recent rebound, the measure has slumped 16 percent this year, the worst performance among major global benchmark indexes tracked by Bloomberg, amid concern the economic slowdown is deepening and a weaker yuan will spur capital outflows.

A purchasing manager’s index focused on small businesses, a gauge of corporate confidence and a new reading of the economy derived from satellite imagery all remained at levels signaling deterioration, though the pace of declines moderated. The reports follow mixed official data showing investment and property sales recovered in the first two months of the year as trade plummeted and manufacturing remained weak.

The ChiNext index slipped 1.7 percent after entering a bull market on Wednesday. China will start the Shenzhen-Hong Kong stock connect program this year at an appropriate time, Premier Li Keqiang said at the Boao Forum in Hainan province. He also reiterated that growth is the top priority in the world’s second-biggest economy and measures can be introduced if needed to ensure the government’s target is met.

The CSI 300 Index dropped 1.7 percent. Hong Kong’s Hang Seng China Enterprises Index fell 1.9 percent, the biggest drop in a month, while the Hang Seng Index lost 1.3 percent. Hong Kong’s financial markets will be shut on Friday and Monday for the holidays.

Industrial Earnings

PetroChina, the nation’s biggest oil company, dropped 1.9 percent in Shanghai after the company posted a 67 percent decline in 2015 earnings amid a writedown of 25 billion yuan ($3.8 billion) because of falling crude oil prices.

Anhui Conch Cement Co. paced declines for material shares, sliding 3 percent. The largest Chinese producer of the building material reported annual net income of 7.54 billion yuan, compared with the estimate of 8.08 billion yuan. Jiangxi Copper Co. slid 5.7 percent. The biggest producer of the metal in China posted a 78 percent plunge in annual profits earlier this week.

Citic Securities slid 5.1 percent. CICC cut its 2016 earnings estimate for the biggest Chinese brokerage by 38 percent, citing uncertainty over the magnitude of potential penalties from earlier probes into its executives. Haitong Securities Co. lost 4 percent, while Guotai Junan Securities Co. retreated 4.4 percent.

H-Shares Outlook

PetroChina and Anhui Conch were also the two worst performers in Hong Kong, sliding more than 4 percent. The rally that’s driven Chinese stocks in the city to the cusp of a bull market will falter as concerns over yuan volatility and rising debt resurface, says Aberdeen Asset Management Plc.

The H-share gauge is experiencing a “bear market rally or a dead cat bounce," not a bull market, said Nicholas Yeo, head of China and Hong Kong equities and a director at the fund manager, which oversees about $430 billion. “Some of the flows in equities are not really due to equities but due to taking a view on the currency."

The offshore yuan dropped to a one-week low on Thursday after China’s central bank weakened its daily fixing and Pacific Investment Management Co. said it sees further depreciation for the currency.

— With assistance by Shidong Zhang

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