China Stocks Decline as Wen Says Economy Faces ‘Uncertainties’

Aug. 25 (Bloomberg) -- Chinese stocks, the world’s worst performers this month, extended declines after Premier Wen Jiabao said the economy faces many “uncertainties” and China Construction Bank Corp. warned of asset bubbles. Aluminum Corp. of China Ltd. slid 2.9 percent after it posted a third quarterly loss and Wen said a “decline in external demand may continue for a longer time” while excess production capacity may restrain industrial growth, according to a statement on the government Web site after the market closed yesterday. China Construction Bank Corp. sank 4.3 percent after Chairman Guo Shuqing said “there are uncertainties in the economy and bubbles in the capital market.” The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 77.63, or 2.6 percent, to 2,915.80 at the close, the biggest loss since Aug. 19. It has dropped 15 percent this month on speculation economic growth will falter and the government will curb new lending. “Investors had been expecting corporate earnings to improve from the very start of the year, but that seems not to have materialized,” said Zhang Ling, who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co. in Beijing. “It looks like there won’t be any catalyst for corporate earnings going forward.” The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, declined 3.7 percent to 3,109.83. ‘Adjustment Measures’ China will keep its “macroeconomic adjustment measures,” such as stimulating domestic demand, maintaining market liquidity, reviving enterprises, promoting innovation and improving social security, Wen was quoted as saying. Authorities can’t be “blindly” optimistic, he said. The economy expanded 7.9 percent in the second quarter from a year earlier, rebounding from the weakest growth in almost a decade. Still, exports last month fell 23 percent from a year earlier, while urban fixed-asset investment and industrial output both expanded less than economist estimates. Aluminum Corp., known as Chalco, fell 2.9 percent to 15.13 yuan. It posted a 1.6 billion yuan ($234 million) loss for the three months ended June 30, compared with a profit of 1.1 billion yuan last year as the global recession drove down prices and demand for the metal used in packaging and cars. Jiangxi Copper Co., the biggest producer of the metal, slid 5.7 percent to 37.20 yuan after saying first-half profit declined 61 percent from a year earlier to 1.2 billion yuan because of lower prices. Western Mining Western Mining Co., China’s fourth-largest maker of zinc concentrate, slumped 6 percent to 14.18 yuan after saying first- half profit plunged 94 percent from a year earlier on lower metal prices, and predicting nine-month profit may fall more than 50 percent. “The weak earnings have prompted investors to think seriously about whether it’s the time to put money into equities now,” Citic Securities Co. analyst Sun Chao said in Shanghai. The Shanghai index is headed for its first monthly drop since December. The gauge has slid 16 percent from its high on Aug. 4, when it more than doubled from the low in November last year. Equities on the Shanghai Composite trade at 30 times earnings, down from a multiple of 38 times on Aug. 4. “We are still within the same market correction that started in early August,” said Gabriel Gondard, deputy chief investment officer at Fortune SGAM Fund Management Co., which oversees about $7.2 billion in assets. “When you sit on a 100 percent year-to-date upside, you’ll usually find some steady selling pressure somewhere.” Capital Requirements The government plans to tighten capital requirements for banks, threatening to curb the record lending that helped to fuel the equities rally this year, three people familiar with the matter said last week. Chinese banks handed out a record $1.1 trillion of new loans in the first half to support the nation’s 4 trillion yuan economic stimulus package. “China’s banking system still has excessive liquidity,” China Construction Bank’s Guo told reporters in Beijing yesterday. The government may audit the destination of bank loans next month, the 21st Century Business Herald reported Aug. 20 on its Web site, citing unidentified commercial bank officials. About 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported in June, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council. Construction Bank Construction Bank sank 4.3 percent to 5.53 yuan. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, fell 2.9 percent to 4.70 yuan. Bank of China Ltd., the No. 3, lost 2.7 percent to 3.93 yuan. Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., slid 7 percent to 20.78 yuan, the most since November, after saying it won conditional approval for its planned share sale from the securities regulator. The bank said in May it won approval from shareholders to raise as much as 30 billion yuan selling shares and bonds. Industrial Bank Co., backed by a unit of HSBC Holdings Plc, tumbled 7.1 percent to 34.04 yuan, having the biggest decline since November. The bank said first-half profit fell 4.9 percent as loan margins narrowed after China cut interest rates to stimulate the economy. The current correction in China’s stock market is overdone and won’t last long as investors “over-reacted” to the central bank saying it would fine-tune monetary policy, Market News International reported today, citing Lu Zhongyuan, vice president of the Development Research Center under the nation’s State Council. The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names. BOE Technology Group Co. (000725 CH), China’s biggest maker of liquid-crystal-display panels, slid 2.1 percent to 4.18 yuan after saying it posted a first-half loss and may also report a loss for the first nine months. China Everbright Securities Co. (601788 CH), a unit of the nation’s largest state-owned investment group, added 3.9 percent to 25.20 yuan after saying first-half net income rose 20 percent from a year earlier to 1.22 billion yuan. Nanjing Panda Electronics Co. (600775 CH), the Chinese partner of phone-equipment maker Ericsson AB, dropped 2.7 percent to 8.15 yuan. The company denied a report by news Web site Hexun.com that it planned to form a liquid-crystal-display venture with Japan’s Sharp Corp. Shandong Airlines Co. (200152 CH) climbed 6.8 percent to HK$5.66 after saying it will return to profit in the third quarter and first-half net income rose 92 percent from a year ago. --Zhang Shidong, with assistance from Jun Luo in Shanghai. Editor: Reinie Booysen, Linus Chua