China's Stocks Decline on Slowing Economy, Greece Concerns

China’s stocks fell, dragging down the benchmark index for the first time in three days, on concern the economic slowdown may accelerate and on speculation Greece may leave the euro area.

Jiangxi Copper Co. (600362) and China Shenhua Energy Co. led declines for commodity producers after the Wall Street Journal cited a government official as saying growth may be below 7 percent without more stimulus. Shanghai Pharmaceuticals Holding Co. (601607), China’s second-largest drug distributor, sank the most since June 2008 after the 21st Century Business Herald reported the securities regulator is investigating the company.

“Sentiment is still weak as investors are shunning risk assets to avoid contagion from Europe,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “It’s a bit hard to reverse the risk-averse sentiment at this moment.”

The Shanghai Composite Index (SHCOMP) retreated 9.87 points, or 0.4 percent, to 2,363.44 at the close. Thirty-day volatility was at 15 today, the lowest in a week. About 7.7 billion shares changed hands in the gauge yesterday, 14 percent lower than the daily average this year. The CSI 300 Index (SHSZ300) dropped 0.4 percent to 2,616.87. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.9 percent in New York yesterday.

The Shanghai index has fallen 4 percent from this year’s high set on March 2 on concern a slowdown in growth at the world’s second-largest economy is deepening. 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.

‘Lack of Leadership’

The MSCI Asia Pacific Index slid 1.6 percent today. Greece’s former Prime Minister Lucas Papademos said that while it is unlikely the nation will leave the euro, it’s still a risk, according to a report in the Wall Street Journal yesterday. European Union leaders are planning to gather in Brussels to discuss how to revive growth.

Jin Liqun, chairman of China Investment Corp.’s supervisory board, said yesterday European authorities have shown a “lack of leadership” on the euro area’s debt crisis and other countries may leave if Greece exits the single currency bloc.

China’s economic growth may fall to 6.4 percent this year if Greece exits the euro zone, Peng Wensheng, an economist at China International Capital Corp., wrote in an e-mailed report.

The scenario assumes a Greek euro exit drags down global economic growth by half as much as the 2008-2009 global financial crisis did, CICC said.

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

Growth Slump

A measure of material stocks in the CSI 300 had the biggest loss among the 10 industry groups, falling 1.4 percent today. Jiangxi Copper, China’s biggest producer of the metal, slid 1.1 percent to 25.59 yuan. Zhuzhou Smelter Group Co. (600961), the country’s biggest producer of refined zinc, dropped 3.2 percent to 10.37 yuan. Shenhua, the nation’s largest coal producer, slipped 1.3 percent to 25.93 yuan.

China’s full-year economic growth may be below 7 percent unless the government introduces more stimulus measures, the Wall Street Journal reported on its Chinese-language website, citing Chen Dongqi, deputy head of the National Development and Reform Commission’s macroeconomic research institute. The government is targeting 7.5 percent growth this year.

Shanghai Pharmaceuticals tumbled the maximum 10 percent to 10.75 yuan. The drug retailer is under investigation from the China Securities Regulatory Commission and the Hong Kong Stock Exchange for suspected financial fraud involving two acquisitions earlier this year, the 21st Century Business Herald cited an unidentified company executive as saying.

Support Measures

Lu Di, an official in Shanghai Pharma’s board office, declined to comment when contacted by phone by Bloomberg News. An official at the China Securities Regulatory Commission’s news office, who asked not to be identified because of the agency’s rules, said he wasn’t immediately able to confirm if the regulator was investigating Shanghai Pharma.

Poly Real Estate Group Co., China’s second-largest developer by market value, gained 1.5 percent to 13.61 yuan. Gemdale Corp. (SHPROP), the fourth largest, advanced 3.4 percent to 6.63 yuan. RiseSun Real Estate Development Co. rose 3.5 percent to 11.70 yuan.

The real estate market may be supported by strong demand, the China Securities Journal reported today, citing unidentified people. Property curbs have stabilized, the newspaper said.

The government may introduce “stronger” policies for stable economic growth, China Business News reported, citing an unidentified person. The policies, especially in the areas of investment and credit, will be discussed by high-level officials“soon,” the report cited the unidentified person as saying.

Rate Outlook

An interest-rate cut can’t be ruled out if data for May indicate further slowing growth, the China Securities Journal reported today, citing unidentified people.

China may keep easing monetary policy, including lowering the reserve-requirement ratio, the newspaper said. The central bank should consider lowering benchmark lending rates or allow more loans at discount rates, according to the report. Interest rates haven’t been cut since 2008.

HSBC Holdings Plc and Markit Economics are due to release a preliminary reading for their purchasing managers’ index tomorrow for May. It was at 49.3 a month last month, below the 50 dividing line for expansion and contraction.

Trina Solar Ltd. (TSL) led declines among the most-traded Chinese equities in the U.S. on speculation the solar-panel maker will disappoint investors for a fifth quarter.

Trina will probably say that sales dropped 28 percent to $398 million, according to the median estimate of 19 analysts surveyed by Bloomberg, when it reports first-quarter earnings today. The company reported net income that fell short of analysts’ estimates in the last four quarters. Chinese solar manufacturers have reported losses since the second quarter of 2011 as the industry has been plagued by overcapacity and as European countries started to cut solar energy subsidies.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 0.7 percent to $33.63, rising only once in the past 15 days.