Metals News
China Stocks Continue Downward Trend Wednesday
data analysis
Jul 1,2010

SHANGHAI, Jul. 1 -- China's stocks fell, sending the benchmark index to the lowest in more than 14 months, on concern economists may reduce their growth forecasts for the nation because of policy tightening measures and the Europe debt crisis.

Jiangxi Copper Co and Zhuzhou Smelter Group Co led declines among raw-material producers after metal prices retreated. Poly Real Estate Group Co, the second-largest developer by market value, dropped 3.8 percent. China Cosco Holdings Co, the world's biggest operator of dry-bulk ships, slid 1 percent on concern shrinking global trade will reduce demand for marine transport.

"The market's expectations for economic and earnings growth are growing more pessimistic and these worries will probably become true in the next few months with data coming out," said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co, which oversees $285 million. "The Shanghai index will fall below 2,300 in this round of corrections."

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, slid 28.68, or 1.2 percent, to close at 2,398.37, the lowest since April 9, 2009. The CSI 300 Index fell 1.1 percent to 2,563.07.

The Shanghai Composite has tumbled 23 percent this quarter, capping the biggest loss since the three months to March 2008, as policy makers tightened rules for the property market and concern grew that Europe's austerity measures will hurt demand in China's largest export destination. The equity index is the world's third-worst performer this year, down 27 percent.

Manufacturing outlook

The Federation of Logistics and Purchasing tomorrow may say China's manufacturing expanded at a slower pace in June. The Purchasing Managers' Index probably fell to 53.2 from 53.8 in May, according to a survey by Bloomberg News. The figure is due 9 am tomorrow.

Jiangxi Copper, China's biggest producer of the metal, fell 5.7 percent to 24.06 yuan. Zhuzhou Smelter, China's biggest producer of refined zinc, lost 2.7 percent to 9.38 yuan. Aluminum Corp of China Ltd, the nation's biggest maker of the lightweight metal and also called Chalco, slid 3 percent to 9.17 yuan. The Reuters/Jefferies CRB Index of 19 raw materials tumbled 2.8 percent, the most since Aug 14.

China Cosco dropped 1 percent to 8.73 yuan. China Shipping Development Co, a unit of China's second-biggest sea-cargo group, lost 1.1 percent to 8.20 yuan. The Baltic Dry Index, a measure of commodity-shipping costs, falled 1.4 percent to 2,447 points yesterday, according to the Baltic Exchange in London, for a 23rd consecutive decline.

Further declines

"Stocks will decline further," said Li Jun, a strategist at Central China Securities Holdings Co in Shanghai. "We'll soon see slowing economic data in July and there's no sign of a reversal in the tightening policies."

Poly Real Estate, the second-largest developer by market value, fell 3.8 percent to 10.23 yuan. Shenzhen Overseas Chinese Town Holdings Co, a manager of theme parks in China, tumbled 9.8 percent to 11 yuan after the company said an accident at a unit's amusement ride killed six people.

Chinese stocks are still the most "overvalued" in Asia excluding Japan, even after a drop in the market's premium to the region, according to Credit Suisse Group AG.

The Shanghai Composite's premium to the rest of Asia has slipped to 34 percent from 84 percent on Dec 31, based on a model comparing price to book value against return on equity, Credit Suisse analysts Sakthi Siva and Kin Nang Chik wrote.

Buy signals

China looks like a buy by almost any measure, according to top-ranked analysts of the Asian nation's shares.

Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc say stocks will rally as China's June 19 decision to end the yuan's two-year peg to the dollar helps curb inflation and asset bubbles. The Shanghai index rose 62 percent in 12 months after China last allowed a more flexible exchange rate in July 2005.

The Shanghai Composite's plunge this year sent its price- earnings ratio to 18, the lowest level versus the MSCI Emerging Markets Index in a decade. The largest owners of yuan- denominated stocks have turned net buyers for the first time since equities bottomed in 2008, while international investors are paying the biggest premium in 21 months to bet on a rally in funds that hold China's yuan-denominated or A shares, data compiled by Macquarie Group Ltd and Bloomberg show.

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