China Is Fucked

The Shanghai Composite Is Getting Slammed

China’s stocks fell, dragging the benchmark index to a three-year low, as weaker profit from China Petroleum & Chemical Corp. to Haitong Securities Co. underscored concern that the nation’s economic slowdown is deepening.

China Petroleum, Asia’s biggest oil refiner and also known as Sinopec, slid 0.8 percent after posting the lowest half-year profit since 2008. Haitong dropped 2.9 percent, pacing losses by brokerages, after saying six-month profit declined. Xinjiang Goldwind Science & Technology Co., the country’s second-largest maker of wind turbines, dropped to its lowest level on record after reporting first-half profit slumped 83 percent.

“Investors are becoming more worried about earnings for this quarter after the poor performance of the first half,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Government tools to boost the economy are limited: policymakers could cut interest rates and bank reserve ratios but they’re worried that would spur inflation.”

The Shanghai Composite Index dropped 0.8 percent to 2,077.05 as of 9:40 a.m. local time, heading for the lowest close since March 2009. The CSI 300 Index declined 0.9 percent to 2,255.32. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong retreated 0.2 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, fell 0.2 percent in New York.

The Shanghai Composite retreated 1.1 percent last week as a report from HSBC Holdings Plc and Markit Economics showed manufacturing may be contracting at a faster pace this month. The index has fallen 5.7 percent this year, dragging down estimated earnings to 9.4 times, compared with the average of 17.5 since Bloomberg began compiling the data in 2006.


Inspection Tour



Premier Wen Jiabao urged extra measures to support exports and help meet economic targets as evidence mounts that the nation’s slowdown is deepening.

“The third quarter is a crucial period for realizing full- year targets on export growth,” Wen said during an inspection tour of Guangdong, the nation’s biggest exporting province, the official Xinhua News Agency said Aug. 25. “Facing the current difficulties, China should substantially improve the environment for companies’ operation and improve companies’ confidence.”

There is also scope for the U.S. to take further action to ease financial conditions and strengthen the recovery, Federal Reserve Chairman Ben S. Bernanke said in an Aug. 22 letter to California Republican Darrell Issa, the chairman of the House Oversight and Government Reform Committee.

The U.S. is China’s second-largest export market, making up about 17 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.


Earnings Decline



Sinopec lost 0.8 percent to 5.97 yuan. The company’s first- half net income fell 41 percent from a year earlier to 24.5 billion yuan ($3.9 billion), the company said in a statement yesterday. The result beat a median estimate of seven analysts compiled by Bloomberg that called for a profit of 22.9 billion yuan.

Haitong Securities slid 2.9 percent to 8.26 yuan after the brokerage said first-half profit dropped 9.4 percent to 2 billion yuan from a year earlier.

Goldwind retreated 0.5 percent to 5.77 yuan. Net income fell to about 72 million yuan in the first half from 425 million yuan a year earlier. Goldwind expects profit to fall at least 50 percent in the first nine months from a year earlier.


‘Get Worse’



“The situation in China has gone beyond a soft landing already, and the next stage is that things will continue to get worse,” Michael Shaoul, the chairman of Marketfield Asset Management in New York, said by phone on Aug. 24. “The move in local equity markets signals that the actual corporate earnings are really deteriorating there.”

Chinese industrial companies’ profits fell 5.4 percent in July from a year earlier to 366.8 billion yuan, the National Bureau of Statistics said in a report on its website today, compared with a 1.7 percent decline in June. Profits in the first seven months of the year dropped 2.7 percent, the bureau said, after a 2.2 percent decline in the first half.

Thirty-day volatility in the Shanghai index was at 11.2 on Aug. 24, compared with this year’s average of 17.3. About 5.9 billion shares changed hands in the gauge, 25 percent lower than the daily average this year.

Chinese equities slumped the most in five weeks in New York on concern growth in the world’s second-largest economy may weaken further after posting six quarters of deceleration, eroding corporate earnings.


Baidu, SouFun



The Bloomberg China-US Equity Index of the most-traded Chinese companies in the U.S. slid 1.6 percent last week to 89.73, the most since the week ended July 20. Baidu Inc., owner of China’s most-popular search engine, sank 14 percent in the week after losing market share to Qihoo 360 Technology Co. Real estate websites E-House China Holdings Ltd. and SouFun Holdings Ltd. fell amid concern China will keep curbs on the industry. Qihoo posted the biggest weekly rally in a year.

Forty-two companies reporting results since mid-July on the Bloomberg gauge have missed analysts’ earnings forecast by an average of 10 percent, Bloomberg data show. A preliminary index published by HSBC Holdings Plc last week suggested manufacturing may contract in China for a 10th month in August.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., dropped 1.4 percent last week to $34.01.