Chinese Stocks Slump Most in Three Weeks as Manufacturing Slows

By Weiyi Lim

China’s stocks fell, dragging the benchmark index down the most in three weeks, as a gauge of manufacturing in the nation this month trailed estimates.

Anhui Conch Cement Co. slid 6.5 percent and Sany Heavy Industry Co. lost 3.2 percent, pacing declines by construction- related companies. China Minsheng Banking Corp. slumped 3.9 percent as financial companies retreated. The preliminary reading of a Purchasing Managers’ Index fell to 50.5 from 51.6 in March, according to HSBC Holdings Plc and Markit Economics. That compared with the 51.5 median forecast of economists. The Shanghai Composite Index (SHCOMP) declined 2.1 percent to 2,194.12 at the 11:30 a.m. local-time break, heading for its biggest loss since March 28. The CSI 300 Index (SHSZ300) fell 2.8 percent to 2,459.33. The Hang Seng China Enterprises Index (HSCEI) retreated 1.8 percent in Hong Kong, taking this year’s drop to 9.1 percent.

“Economic data is likely to continue to be weaker in the second quarter,” said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu. “The government’s current policy is to be risk averse and focus on the restructuring of the economy, so data like today’s PMI is acceptable for them. As such, our recovery may be much weaker than we had hoped for and this will drag stocks.”

The Shanghai Composite has slumped 9.9 percent from a Feb. 6 high on concern slowing growth will hurt earnings. China’s economy expanded 7.7 percent in the first quarter, missing estimates, as industrial production and fixed-asset investments in March fell short of forecasts. Rising Chinese home pricesmay limit scope for stimulus as President Xi Jinping seeks to prevent a real-estate bubble.

‘Normal’ Growth

In Washington last week, central bank Governor Zhou Xiaochuan said the pace of growth was reasonable and “normal.”

Anhui Conch tumbled 6.5 percent to 17.98 yuan, heading for its biggest drop since March 4. The company reported first- quarter net income fell to 972 million yuan ($157 million) from 1.25 billion yuan a year earlier. BBMG Corp. plunged 5.6 percent to 6.71 yuan. The cement producer said last week it expects a 60 million yuan loss in the first quarter.

“This has been a very narrowly based recovery, predominantly driven by infrastructure investment, but now even infrastructure investment is also apparently slowing down,” said Tao Dong, head of Asia economics excluding Japan at Credit Suisse Group AG in Hong Kong.

Sany Heavy, China’s biggest construction equipment maker, lost 3.2 percent to 10.10 yuan.

A gauge tracking financial companies retreated 3.4 percent, the most among the CSI 300’s 10 industry groups. Minsheng Banking slid 3.9 percent to 9.84 yuan. China Merchants Bank Co. lost 3.7 percent to 12.12 yuan.

Government Loans

China’s local government financing vehicles will have to repay about 3.49 trillion yuan of loans over the next three years, China Business News reported, citing the country’s banking regulator.

Debt that will come due in that period accounts for about 37.5 percent of total loans to governments at the province, county and municipal levels, Shang Fulin, chairman of the China Banking Regulatory Commission, told an internal meeting, according to the newspaper. Two phone calls to the regulator’s press office by Bloomberg News went unanswered.

A gauge of property developers on the Shanghai Composite tumbled 3.2 percent. China Vanke Co., the nation’s biggest, lost 4.8 percent to 11.13 yuan, even as the company reported a 16 percent increase in first-quarter profit. Gemdale Corp. sank 5.3 percent to 6.96 yuan.

Valuations on the Shanghai gauge fell to 9 times projected 12-month profits, compared with the seven-year average of 15.8, data compiled by Bloomberg show. Trading volumes in the Shanghai index are 13 percent higher than the 30-day average yesterday, according to data compiled by Bloomberg.

-- Editors: Richard Frost, Allen Wan

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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