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China’s Stocks Drop as Profit Concerns Overshadow Easing Bets

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Source: Bloomberg

China’s stocks fell, capping the benchmark index’s first weekly losses in a month, as slumping corporate earnings overshadowed speculation the central bank will ease monetary policy to boost economic growth.

China Cosco Holdings Co led declines for shippers after reporting a wider loss. China Petroleum & Chemical Corp, Asia’s biggest refiner, dropped the most in four weeks after posting a slump in net income. Liquor maker Kweichow Moutai Co jumped 3.6 per cent, pacing gains for consumer staples stocks, on speculation their earnings are more resilient in a slowdown.

“First-quarter earnings are supposed to be very poor,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “The market still needs some time to digest these bad numbers.”

The Shanghai Composite Index dropped 8.4 points, or 0.4 per cent, to 2,396.32 at the close. It lost 0.4 per cent this week. The CSI 300 Index slid 0.2 per cent to 2,626.16. China’s markets are closed April 30 and May 1 for the holidays. The Bloomberg China-US 55 Index, the measure of the most-traded US-listed Chinese companies, added 1.6 per cent at the close in New York.

About 11.6 billion shares changed hands in the Shanghai Composite Thursday, or 29 per cent more than the daily average this year. Thirty-day volatility in the gauge was at 17.1, the lowest in a month.

The Shanghai index has climbed 9 per cent this year amid speculation the government will take measures to boost the economy. Stocks in the gauge are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on January 6, according to weekly data compiled by Bloomberg.

Speculation that Chinese policy makers will undertake more easing of monetary policy has been bolstering the nation’s equities, said Michael Gayed, chief investment strategist in New York at Pension Partners LLC, which advises on more than US$150 million in assets.

“Markets price on hope and the rumour is that China is going to stimulate to counter slower growth given Brazil and India have already lowered rates,” Gayed said Thursday. “China is the last one to start really actively doing that.”

China has cut reserve requirements for banks twice since November, though it has kept benchmark rates on hold since July at the highest level since 2008. India reduced its repurchase rate by 50 basis points on April 18, while Brazil’s Selic rate has been cut six times since August.