China's Stocks Drop on Earnings, European Concerns

China’s stocks fell, extending the benchmark index’s biggest weekly loss in four months, as European manufacturing weakened and concern intensified slowing economic growth is hurting earnings.

China United Network Communications Ltd. (600050), which controls the nation’s second-largest cell phone operator, dropped 2.1 percent after the company reported profit that trailed analyst estimates. Agricultural Bank of China Ltd. declined 0.4 percent after the lender posted its first quarterly profit decline in two years. Poly Real Estate Group Co. and Gemdale Corp. slid more than 1 percent after the Economic Information Daily said the nation may expand property tax trials.

“The prospect of negative earnings in the first quarter hasn’t been priced in yet,” said Wang Weijun, an analyst at Zheshang Securities Co. in Shanghai. “Bad data from Europe may also change investors’ risk appetite.”

The Shanghai Composite Index (SHCOMP) dropped 16.51 points, or 0.7 percent, to 2,359.26 at 1:06 p.m. local time, the lowest level since Feb. 17. The CSI 300 Index (SHSZ300) declined 0.8 percent to 2,563.99. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.8 percent in New York yesterday.

The Shanghai Composite has fallen 1.9 percent this week, heading for the steepest weekly drop since the period ended Dec. 16, after reports showed profits for state-owned companies dropped in the first two months of this year and manufacturing may contract in March. A leading index for China rose at a slower pace in February, with the gauge gaining 0.8 percent from the previous month to 227.2, the Conference Board said today, citing a preliminary reading. That compares with a 1.5 percent gain in January that was revised down from 1.6 percent.

Europe Economy

This week’s losses for the Shanghai index pared 2012 gains to 7.3 percent. Stocks in the index trade at 9.8 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed. The index lost 22 percent in 2010 and 2011 combined.

Thirty-day volatility on the Shanghai Composite was at 15.1, near a two-week low. About 10.9 billion shares changed hands on the main boards of the Shanghai and Shenzhen stock exchanges yesterday, or 16 percent lower than the daily average this year, data compiled by Bloomberg show.

A gauge of European manufacturing fell to 47.7 as factory output unexpectedly shrank in Germany and France, according to London-based Markit Economics. Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

Vice Commerce Minister Zhong Shan said today the nation is facing greater pressure to stabilize export growth as “uncertainties” in the world economy increase. The European debt crisis will be difficult to resolve in the short term, Zhong said at briefing in Beijing.

Earnings Miss

AgriBank (601288) fell 0.4 percent to 2.64 yuan after the bank unexpectedly said its quarterly profit dropped for the first time since listing two years ago due to lending restrictions and higher bad-loan costs.

Net income declined 14 percent to 21.2 billion yuan ($3.4 billion) for the fourth quarter, according to data compiled by Bloomberg based on full-year figures reported by the lender yesterday. That fell short of the 28.84 billion-yuan average estimate of 20 analysts in a Bloomberg survey.

Industrial & Commercial Bank of China Ltd., the nation’s biggest lender, fell 0.2 percent to 4.33 yuan. Bank of China Ltd., the fourth largest, lost 0.3 percent to 2.97 yuan.

China United slid 1.1 percent to 4.49 yuan after saying 2011 net income rose 14 percent to 1.4 billion yuan. That compared with the average profit estimate of 13 analysts for 2.2 billion yuan.

Property Taxes

China Unicom (Hong Kong) Ltd. (CHU), the nation’s second-largest mobile phone company and a unit of China United, will boost capital spending 30 pe