China's Stocks Decline to March 2009 Low on Earnings Concerns

China’s stocks fell, dragging the benchmark index down to the lowest level since March 2009, as concern earnings growth is slowing overshadowed speculation European policy makers will take action to ease the debt crisis.

China Cosco Holdings Co. (601919), the nation’s largest publicly traded shipping company, slumped to a record low after saying it expects its first-half loss to widen from a year ago. China Life Insurance Co. sank to the lowest in four weeks on speculation flood claims in Beijing will hurt profits. A gauge of B shares slid to a two-year low on concern more companies face delisting.

The Shanghai Composite Index (SHCOMP) fell 0.9 percent to 2,109.91 at the close. The CSI 300 Index lost 0.6 percent to 2,335.79. The Shanghai B-Share Stock Price Index (SHBSHR), which tracks foreign currency-denominated shares listed in China, slid 5.6 percent.

“Second-quarter earnings for companies are really quite bad and are dragging on the market,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “People have accepted that fact now, and eyes are on whether they will improve next quarter. Europe leaders’ pledge to protect the euro will boost confidence but we need to see concrete measures before the market can stabilize.”

The Shanghai Composite has dropped 5.2 percent in July, poised for the third month of declines. It has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is deepening and Europe’s debt crisis is worsening.

Earnings Concerns

China Cosco slumped 4.6 percent to 4.20 yuan, its lowest close on record. The company estimates its first-half loss will widen by 50 percent or more from the same period a year ago, according to a statement to the Shanghai Stock Exchange on July 27. Angang Steel Co. (000898) dropped 0.8 percent to 3.68 yuan. Large-and medium-sized steelmakers’ combined first-half profit fell 96 percent from a year ago to 2.39 billion yuan, the Economic Information Daily reported.

Net income for China’s 117 central government-run companies fell 16 percent in the first half from a year earlier, the nation’s state assets supervision agency said July 20 on its website.

Thirty-day volatility on the Shanghai Composite was at 14. About 5.2 billion of the gauge’s shares changed hands on July 27, 31 percent lower than this year’s average. The index is valued at 9.5 times estimated profit, compared with the three-year average of 14.7.

European Central Bank President Mario Draghi is trying to build consensus among governments and central bankers for a plan to ease borrowing costs in Spain and Italy before ECB policy makers convene on Aug. 2. He meets with U.S. Treasury SecretaryTimothy Geithner in Frankfurt today and is also attempting to win over Bundesbank President Jens Weidmann, a critic of ECB bond purchases.

B Shares

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

The Shanghai B-Share Stock Price Index slid to the the lowest close since June 1, 2010. Tsann Kuen (China) Enterprise Co. (200512) tumbled 9.8 percent to HK$0.55 in Shenzhen trading. The stock closed below its face value of 1 yuan for 15 straight days to July 27, which may lead to the stock being delisted, according to a statement to the exchange.

“Investors are afraid there will be more companies delisting” if Tsann Kuen’s stock is removed from trading, said Wei Wei, an analyst at West China Securities Co. in Shanghai.

China’s securities regulator and its two stock exchanges have tightened scrutiny this year on companies facing delisting as part of efforts to restore confidence in capital markets.

Insurers Fall

China Life dropped 2.7 percent to 18.39 yuan. Ping An retreated 2 percent to 43.61 yuan. Chinese insurers in Beijing received insurance claims totaling more than 500 million yuan for damage to vehicles and other property during July 21 floods, the Xinhua News Agency reported July 26. Investors are concerned claims will impact earnings for insurers next quarter, said Xie Jiyong, an analyst at Capital Securities Corp. in Shanghai.

Options dealers are charging the biggest premium in four months to protect against losses in Chinese companies amid increasing concern the world’s second-biggest economy is slowing. The AlphaShares Chinese Volatility Index, derived from options on companies trading in Hong Kong, climbed to 23.13 on July 26, 32 percent higher than the Chicago Board Options Exchange Volatility Index, near the widest gap since March.

‘Extremely Bearish’

AsiaInfo-Linkage Inc., a Beijing-based developer of telecommunication software that is listed in the U.S., may report today a 35 percent decline in adjusted profit for the second quarter, the average estimate of six analysts compiled by Bloomberg showed. Ctrip.com International Inc. (CTRP) said last week second-quarter net income fell 55 percent from a year ago.

AsiaInfo, which sells to China Unicom (Hong Kong) Ltd., China Mobile Ltd. and China Telecom Corp., may say sales rose 15 percent from a year ago to $127 million, analysts predicted.

“American investors are extremely bearish toward China. If there’s any slightly bad news about a company, the stock would fall like a stone,” Michael Ding, lead manager of the China Region Fund at U.S. Global Investors Inc., which oversees $2.2 billion, said in a telephone interview from San Antonio, Texas on July 27. “In this macro trend of economic growth slowdown, corporate revenue and earnings will slow down in general, and that will be reflected in weak stock prices.”