China Stocks Fall for First Time in Five Days on Technology Drop

Feb 13, 2014 3:23 am ET

Feb. 13 (Bloomberg) -- China’s stocks fell, halting the benchmark index’s longest stretch of gains since October, after technology companies slid on speculation a rally has been excessive and coal producers dropped on concern profits will slump as the government takes measures to contain pollution.

China Shenhua Energy Co., the nation’s biggest coal producer, lost 1 percent. Yonyou Software Co. plunged 8.1 percent, dragging down technology shares, the best-performing industry group over the past year. Poly Real Estate Group Co. slid the most in two weeks after reporting a sales decline. China Citic Bank Corp. jumped 9.5 percent, extending a rally in the past five days to 37 percent since markets resumed trading after the Chinese new year holiday.

The Shanghai Composite Index fell 0.6 percent to 2,098.40 at the close, snapping a four-day, 3.8 percent rally. The Hang Seng China Enterprises Index lost 1.2 percent to 9,872.71. The small-company ChiNext Index, which includes technology shares, slid 3.6 percent, paring gains since the start of last year to 108 percent.

“The popular stocks such as technology among small-caps are falling because they have risen a lot and their valuations and stock prices are relatively high,” Deng Wenyuan, an analyst at Soochow Securities Co., said by phone. “The market is likely to rebound again after this round of correction.”

The CSI 300 retreated 0.5 percent to 2,279.55. The Bloomberg China-US Equity Index was little changed yesterday.

The Shanghai gauge has climbed 5.4 percent since its price- to-earnings ratio fell to a record on Jan. 20, fueled by improving trade data and after JPMorgan Chase & Co. predicted a market rally within weeks. The rebound has revived interest in trading, with today’s volumes rising 83 percent above the 30-day average. The index is still down 0.8 percent for the year.

Coal Stocks

Shenhua Energy dropped 1 percent to 14.04 yuan in Shanghai and 2.8 percent to HK$20.75 in Hong Kong. China Coal Energy Co., the nation’s second-largest producer which said last month profit last year may have slumped as much as 65 percent, declined 1.1 percent in Shanghai. The Hong Kong shares slid 3.9 percent after being removed from the Hang Seng Index as part of a reshuffle.

Sixteen Chinese listed coal companies are reporting losses or declines in profits for 2013, the Economic Information Daily reported today, citing Wind data. Seventeen of 27 listed coal companies have issued profit alerts or preliminary earnings reports as of yesterday, according to the newspaper.

China will set up a 10 billion yuan ($1.65 billion) fund to reduce air pollution in the country’s largest cities, according to a release from a State Council meeting at which Premier Li Keqiang presided.

Technology Selloff

The fund will aid in efforts to cut fossil-fuel use and control consumption of coal, the country’s largest source of energy, according to a statement posted on the Chinese central government’s website yesterday.

Yonyou Software plunged 8.1 percent to 19.03 yuan, paring gains to 85 percent over the past year. The technology sub-index in the CSI 300 slid 1.7 percent, trimming a 12-month rally to 36 percent, the best performer among the groups.

Leshi Internet Information & Technology (Beijing) Co. plunged 6.6 percent to drag down companies in the ChiNext. The small-caps gauge trades at 35.4 times projected 12-month earnings, compared with 7.8 for the Shanghai Composite.

Poly Real Estate led declines for developers, retreating 2 percent to 7.85 yuan after January contracted sales fell 3 percent. Gemdale Corp. retreated 2.6 percent to 6.06 yuan.

Banks Gain

Citic Bank rallied 9.5 percent in Shanghai and 2.5 percent in Hong Kong. Daiwa Securities Group Inc., which upgraded Citic Bank’s Hong Kong shares to outperform in a Feb. 11 note, said the lender’s valuation “looks cheap” and a plan to increase its 2013 write-offs of non-performing loans should reduce pressure on provision charges. The stock trades at 3.9 times projected profit, compared with the five-year average of 7.

China may announce January money supply and new loans data as soon as today. The National Bureau of Statistics is scheduled to release inflation data tomorrow. Consumer-price growth may have slowed to 2.4 percent in January from 2.5 percent in December, according to the median estimate of 45 economists surveyed by Bloomberg. Producer prices may have declined 1.6 percent, compared with a drop of 1.4 percent in December.

--With assistance from Belinda Cao in New York. Editors: Allen Wan, Richard Frost