China's Stocks Drop as Earnings Concerns Overshadow Fed Policy

China’s stocks fell for the first time in three days as slumping earnings from BYD Co. to China Shipping Container Lines Co. (601866) overshadowed optimism the Federal Reserve is ready to do more to boost U.S. economic growth.

China Shipping Container, the country’s second-largest carrier of sea-cargo boxes, slid to the lowest in 10 days after it posted a loss in the first quarter. BYD, the automaker part- owned by Warren Buffett’s Berkshire Hathaway Inc., fell 3.7 percent after it forecast a plunge in first-half profit. Jiangxi Copper Co. (600362) and coal producer China Shenhua Energy Co. led gains for commodity companies after Fed Chairman Ben S. Bernanke said he’s prepared to add to monetary stimulus if necessary.

“The major concern is whether earnings for the next reporting period will be as poor as the first quarter,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “Further monetary stimulus such as a third round of quantitative easing is still likely and the Fed is waiting for a good time to do that.”

The Shanghai Composite Index (SHCOMP) dropped 2.1 points, or 0.1 percent, to 2,404.70 at the close. The CSI 300 Index (SHSZ300) added 0.2 percent to 2,631.49. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.1 percent in New York on April 25.

The Shanghai index has climbed 9.3 percent this year amid speculation the government will take measures to boost the economy. Stocks in the gauge are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg. About 13.1 billion shares changed hands in the Shanghai Composite yesterday, or 46 percent higher than the daily average this year. Thirty-day volatility in the gauge was at 18.6, the lowest in a week.

Earnings Slump

China Shipping Container slid 1.3 percent to 3.08 yuan. The company posted a loss of 1.45 billion yuan ($230.1 million) in the first quarter, the shipping line said in a statement yesterday. China Cosco Holdings Co. dropped 1.3 percent to 5.39 yuan. Cosco Shipping Co. declined 1.7 percent to 5.11 yuan.

BYD slumped 3.7 percent to 26.39 yuan. First-half profit may fall as much as 95 percent from a year earlier because of reduced earnings from solar energy and mobile handsets, the automaker said in a statement yesterday. SAIC Motor Co., the biggest Chinese automaker, declined 1 percent to 15.20 yuan.

Eight hundred and fifty-five companies in the Shanghai Composite have released annual earnings. They posted profit growth of 14 percent on average, trailing analyst estimates by 2.2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

QE3 Speculation

The MSCI Asia Pacific Index (MXAP) advanced 0.4 percent today on speculation the Fed might embark on a third round of bond purchases, a tactic known as quantitative easing.

U.S. policy makers said they expect growth to gradually accelerate, while refraining from new action to lower borrowing costs. Central bankers upgraded their forecasts for economic growth and unemployment while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

The U.S. is China’s second-largest export market, making up about 17 percent of the nation’s exports, according to Shenyin & Wanguo Securities Co.

Jiangxi Copper, China’s biggest producer of the metal, rose 1.6 percent to 26.01 yuan after the company reported a 14 percent jump in first-half revenue even as profit dropped 9.6 percent. UOB-Kay Hian said the company’s revenue growth was “strong” and its valuations are attractive.

Wen Pledge

Shenhua, the nation’s largest coal producer, added 0.8 percent to 26.81 yuan. China Coal Energy Co. (601898), the second largest, gained 0.9 percent to 9.41 yuan.

Chinese equities in the U.S. rose for the first time in four days, led by consumer stocks, on prospects the world’s second-largest economy will maintain growth as domestic demand climbs.

The world’s biggest exporter will sustain “steady and robust” economic growth, Premier Wen Jiabao told reporters in Stockholm on April 24, more than a month after releasing the lowest annual target for expansion since 2004.

“A lot of consumer stocks are on a rebound as there’s been a lot of data recently supporting the views of the soft landing crowd,” Erik Lam, director of Asian equity sales at Auerbach Grayson & Co. in New York, said by a phone yesterday. “Growth is already coming from domestic demand, and as a result, stocks viewed as benefiting from increased consumption, Internet, airlines, casino, are getting a boost.”

The IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., climbed 0.9 percent to $37.53 in its second day of gains.