China's Stocks Drop as Profit Concerns Overshadow Easing Bets

China’s stocks fell, capping the benchmark index’s first weekly losses in a month, as slumping corporate earnings overshadowed speculation the central bank will ease monetary policy to boost economic growth.

China Cosco Holdings Co. led declines for shippers after reporting a wider loss. China Petroleum & Chemical Corp. (600028), Asia’s biggest refiner, dropped the most in four weeks after posting a slump in net income. Liquor maker Kweichow Moutai Co. jumped 3.6 percent, pacing gains for consumer staples stocks, on speculation their earnings are more resilient in a slowdown.

“First-quarter earnings are supposed to be very poor,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “The market still needs some time to digest these bad numbers.”

The Shanghai Composite Index (SHCOMP) dropped 8.4 points, or 0.4 percent, to 2,396.32 at the close. It lost 0.4 percent this week. The CSI 300 Index (SHSZ300) slid 0.2 percent to 2,626.16. China’s markets are closed April 30 and May 1 for the holidays. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 1.6 percent at the close in New York.

About 11.6 billion shares changed hands in the Shanghai Composite yesterday, or 29 percent more than the daily average this year. Thirty-day volatility in the gauge was at 17.1, the lowest in a month.

The Shanghai index has climbed 9 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.

Head and Shoulders

The index may be forming a so-called inverse head-and- shoulders pattern that could drive it up 17 percent should it break its 200-day moving average of 2,470, according to Trading Central Asia Ltd.

The Shanghai Composite is “now approaching the neckline of its potential reversal pattern” after rebounding 12 percent from this year’s low on Jan. 5, Jeffrey Zhang, Hong Kong-based head of Asia research at Trading Central, said today in an e- mailed response to questions.

Chinese industrial companies’ profit rose 4.5 percent in March, rebounding from the first January-February decline since 2009 as demand strengthened.

Company profits climbed from a year earlier to 438.9 billion yuan ($69.6 billion), the National Bureau of Statistics said on its website today. Net income dropped 5.2 percent in the first two months of 2012.

Earnings Slump

China Cosco, the nation’s biggest publicly traded shipping company, fell 1.5 percent to 5.31 yuan. The company posted a wider first-quarter loss because of higher fuel prices and lower fees for carrying containers and commodities. Cosco Shipping Co. slipped 0.4 percent to 5.09 yuan.

Sinopec declined 1.4 percent to 7.18 yuan. The company posted a 35 percent drop in profit, missing estimates, after increases in state-controlled gasoline and diesel prices lagged behind gains in crude-oil costs.

Eight hundred and eighty-two 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.

A gauge of consumer staples producers in the CSI 300 rose 1.7 percent, the most among the 10 industry groups. Moutai, the biggest producer of baijiu liquor, gained 3.6 percent to 224.56 yuan. Rival Wuliangye Yibin added 0.9 percent to 35.62 yuan.

Communist Newspaper

People.cn Co., the online business of the Chinese Communist Party’s official newspaper, jumped as much as 78 percent on its trading debut in Shanghai after the company raised almost three times the amount it initially sought. The stock surged to as much as 35.58 yuan, prompting the Shanghai Stock Exchange to suspend trading of the shares twice.

China’s stocks are twice as likely to rise on Fridays compared with Mondays as investors bet officials will announce looser monetary policies during the weekend to stimulate growth, recent history shows.

The Shanghai Composite gained 76 percent of the time on Fridays starting from Nov. 25, according to data compiled by Bloomberg. By comparison, the gauge rose on 38 percent of the first trading days of the week in the period, taking into account two Monday holidays. The Shanghai index rose an average of 0.4 percent on Fridays in the five-month period, versus an average decline of 0.2 percent as the week commenced.

“Excitement about policy movements on Friday usually turns to disappointment on Monday,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “Investors keep pushing back their expectations for reserve- ratio cuts. But loosening is definitely on the way.”

U.S.-Traded Stocks

The IShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., climbed for a third straight day, adding 0.6 percent to $37.74.

U.S. Treasury Secretary Timothy F. Geithner called on China to loosen state control of its financial system and to raise the ceiling on deposit interest rates.

“Financial sector reforms are critical to China’s continued growth -- and that growth in turn represents tremendous opportunity for American companies and workers,” Geithner said in remarks prepared for a speech in San Francisco yesterday. “Financial reform in China will help reduce one of the main advantages China’s state-owned enterprises have in competing with U.S. companies.”

Geithner was speaking before his trip to China next week to meet with officials of the world’s second-largest economy. The U.S. will raise longstanding issues from the value of China’s currency to intellectual property protection.

Reserve Ratios

Speculation that Chinese policy makers will undertake more easing of monetary policy has been bolstering the nation’s equities, said Michael Gayed, chief investment strategist in New York at Pension Partners LLC, which advises on more than $150 million in assets.

“Markets price on hope and the rumor is that China is going to stimulate to counter slower growth given Brazil and India have already lowered rates,” Gayed said by phone yesterday. “China is the last one to start really actively doing that.”

China has cut reserve requirements for banks twice since November, though it has kept benchmark rates on hold since July at the highest level since 2008. India reduced its repurchase rate by 50 basis points on April 18, while Brazil’s Selic rate has been cut six times since August.