Most Chinese Stocks Decline on European Debt, Earnings Concerns

Most of China’s stocks fell on concern Europe’s debt crisis is worsening and earnings growth is slowing. Chongqing-based companies sank after the city’s former top official was suspended from Communist Party posts.

Chongqing Brewery Co. (600132) and Chongqing Road & Bridge Co. (600106) dropped at least 0.5 percent after the official Xinhua News Agency said Bo Xilai was removed from the Politburo. China Shipping Development Co. (600026), a unit of China’s second-biggest sea- cargo group, retreated 1.5 percent after forecasting a first- quarter loss. Poly Real Estate Group Co. led a gauge of developers to its highest level in almost a month on speculation industry sales and new lending will rebound.

“Europe’s financial woes will damp risk appetite globally,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “China’s economy is trending down and first-quarter corporate earnings may also hurt sentiment. Investors are concerned about some uncertainty in Chongqing.”

Five stocks declined for every four that rose in the Shanghai Composite Index (SHCOMP), which dropped less than 0.1 percent to 2,304.86 as of 2:08 p.m. local time. The CSI 300 Index (SHSZ300) lost 0.2 percent to 2,515.92. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 2.5 percent in New York yesterday.

The Shanghai index reversed a loss of as much as 1.2 percent in the last hour of trading yesterday to close 0.9 percent higher as some investors said measures may be introduced at today’s regular meeting of the State Council, or cabinet. About 6.7 billion shares changed hands in the gauge yesterday, 23 percent lower than the daily average this year.

European Debt

The Shanghai Composite has gained 4.8 percent this year on speculation the government will cut lenders’ reserve requirements and interest rates to boost the economy. Stocks in the gauge are valued at 9.7 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg. Thirty-day volatility was at 17.7 today, near the lowest level this month.

China Shipping lost 1.5 percent to 5.99 yuan after saying it expects a first-quarter loss on “insufficient” demand.

Six hundred and forty-eight companies in the Shanghai Composite have released annual earnings. They posted profit growth of 14 percent on average, trailing analyst estimates by 1.9 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

Export Concerns

The MSCI Asia Pacific Index retreated 0.7 percent today as Spanish bonds slumped after Economy Minister Luis de Guindos declined to rule out a rescue and Bank of Spain Governor Miguel Angel Fernandez Ordonez said the nation’s lenders may need more capital if the economy weakens more than expected.

Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

Chinese trade data yesterday showed an unexpected surplus for March and slowing growth in imports and exports. Overseas shipments rose 8.9 percent last month, more than economists’ forecast. Still, it was down from 18.4 percent growth in February.

“The slowdown in export growth was broad-based with the biggest drag coming from Europe, driven by the sovereign debt crisis that remains to be fully resolved,” HSBC Holdings Plc economists Xiaoping Ma and Hongbin Qu said in a report yesterday. Exports to the European Union contracted by 3.1 percent in March, it said.

Chongqing Intrigue

“Net exports will likely become a major drag on GDP growth” in the first quarter, the HSBC economists wrote. “This reinforces the need for further easing.”

The statistics bureau is due to report the nation’s first- quarter gross domestic product and other March data including industrial production on April 13. The economy probably grew 8.4 percent in the first three months of the year, according to the median estimate of 38 economists surveyed by Bloomberg. The economy expanded 8.9 percent in the fourth quarter of 2011, the least in 10 quarters.

Chongqing Brewery fell 0.5 percent to 28.22 yuan while Chongqing Road & Bridge lost 0.7 percent to 10 yuan.

Gu Kailai, Bo’s wife, and a domestic helper are “highly suspected” of killing British businessman Neil Heywood, who died in Chongqing in November, Xinhua reported late yesterday. The U.K. was originally told that Heywood died of alcohol poisoning.

“That may put some pressure on Chongqing-related companies,”said Li of Central China Securities.

Property Rebound

A measure of property stocks in the Shanghai Composite advanced 1.2 percent, set for its highest close since March 13. Poly Real Estate, China’s second-largest developer by market value, gained 1.1 percent to 11.79 yuan. The company said on April 9 contracted sales jumped 47 percent last month.

China Vanke Co., the biggest developer, added 1.3 percent to 8.53 yuan. China Merchants Property Development Co., the third largest, rose 2.9 percent to 21.81 yuan.

“The lending data for last month might be better than expected, while property is a direct beneficiary if loans improve,” Cui Juan, a Beijing-based analyst at Minzu Securities Co., said by phone today. “Home sales in March also rebounded from previous months.”

New loans may have reached 900 billion yuan ($143 billion) in March, exceeding the amounts in the first two months of 2012, the China Securities Journal reported on April 9. The central bank may release the figure as early as today.

U.S.-Traded Stocks

“Economic growth seems to be near its bottom,” said Jeff Papp, a senior analyst in Lisle, Illinois at Oberweis Asset Management Inc., which manages $700 million of assets including Chinese stocks. The slump in Chinese equities, fueled by revived concern about Europe’s debt crisis, will be temporary, and “the government will ease monetary policy further to stimulate consumption, which will help boost company profits,” Papp said.

Chinese equities in the U.S. slid to a two-month low, led by consumer stocks, as import growth that trailed economists’ estimates added to concern that the world’s second-largest economy is faltering.

The Bloomberg China-US 55 Index (CH55BN) dropped to the lowest level since Jan. 31 yesterday. The IShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., sank 1.7 percent in its second day of declines to a three-month low of $35.75.