Chinese stocks slump for second day amid signs of weak growth

Industrial profits dropped 0.3 per cent in June from a year earlier.
Industrial profits dropped 0.3 per cent in June from a year earlier.PHOTO: REUTERS

SHANGHAI (BLOOMBERG) - China's stocks tumbled for a second day as a decline in industrial profits added to concern the nation's economic slowdown is deepening.

The Shanghai Composite Index retreated 2.3 per cent to 3,978.90 at 1:05 p.m., as all groups declined. The Hang Seng China Enterprises Index sank 3.6 per cent as Haitong Securities Co. and Citic Securities Co. plunged more than 6 per cent. The gauge of Chinese shares traded in Hong Kong has lost 14 per cent in the past month, the worst performance among 93 global benchmark indexes tracked by Bloomberg.

Industrial profits dropped 0.3 per cent in June from a year earlier, the statistics bureau said Monday, after data Friday showed a private gauge of Chinese manufacturing unexpectedly fell in July to the lowest level in 15 months. Unprecedented government intervention in mainland equities following a US$4 trillion rout has widened a valuation gap between dual-listed shares in Shanghai and Hong Kong.

"The soft industrial figure number is adding downward pressure," said Gerry Alfonso, a sales trader at Shenwan Hongyuan Group Co. in Shanghai. "The brokerage sector underperformed the overall market with the current low trading volumes becoming perhaps the main driver of that poor performance."

The Hang Seng Index fell 2.8 per cent, the most since July 8. Hong Kong Exchanges & Clearing Ltd. tumbled 4.5 per cent. Turnover on the Hong Kong exchange fell to its lowest level in four months on Friday and was down more than 70 per cent from its April peak. The Hang Seng China AH Premium Index widened to 144.70, the highest level since July 10.

Industrial profits slumped last month to 588.6 billion yuan (S$130.11 billion), compared with a 0.6 per cent gain in May, according to data from the statistics bureau. For the first six months, profits slid 0.7 per cent to 2.84 trillion yuan.

Money-market traders are betting China's central bank has little room to cut interest rates further, as four reductions in seven months raise inflation risks. People's Bank of China Governor Zhou Xiaochuan faces a dilemma as further rate cuts to support a slumping stock market risk re-inflating the equities bubble.

The Shanghai Composite fell more than 30 per cent during a recent rout before rebounding 16 per cent from July 8 through Friday as officials allowed more than 1,400 companies to halt trading, banned major shareholders from selling stakes, restricted short selling and suspended initial public offerings.

Gauges of energy, financial and technology companies in the CSI 300 slid at least 2.5 per cent for the steepest losses among 10 industry groups on Monday. PetroChina Co. slumped 3.3 per cent, while Yanzhou Coal Mining Co. declined 5.5 per cent.

West Texas Intermediate crude for September delivery was at US$48 a barrel in electronic trading on the New York Mercantile Exchange, down 14 cents. Prices have slumped more than 20 per cent since the peak reached in June, meeting the common definition of a bear market.

Brokerages led declines for financial shares in Shanghai as trading volumes on the city's exchange fell 20 percent below the 30-day average. Citic Securities and Huatai Securities Co. slid more than 4 per cent in Shanghai, where margin debt slipped for first time in six days on Friday. The outstanding balance lost 0.1 per cent, or 547 million yuan, to 940.8 billion yuan, according to exchange data.