China's Stocks Slump Most in Six Weeks Before Olympic Games

By Zhang Shidong and Dingmin Zhang
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Aug. 8 (Bloomberg) -- China's stocks tumbled the most in six weeks on disappointment the government refrained from announcing measures to boost the market ahead of the Olympic Games, opening in Beijing today.

China's CSI 300 Index extended its decline this year to 51 percent amid speculation the opening ceremony may be disrupted by security threats. Citic Securities Co., the brokerage unit of the country's biggest investment company, declined after the value of shares traded on China's two principal exchanges slumped yesterday to the lowest level since December 2006.

``The market was expecting the government to announce some market-stabilizing measures before the games, but nothing got announced so far,'' said Mona Chung, a Hong Kong-based fund manager at Daiwa Asset Management Ltd.

The CSI 300 Index dropped 128.98, or 4.7 percent, to 2,591.46 at the close, the biggest slump since June 27. The gauge closed at its lowest level since March 7, 2007.

The index fell 6.8 percent this week, the worst drop since the five days to June 13. Central bank efforts to cool inflation have deflated a stocks boom that drove the gauge up sevenfold in the two years through 2007 and drew record investors.

All but 14 stocks on the 300-member benchmark index dropped. More than 30 stocks plunged by the daily 10 percent limit, including Air China Ltd. and China Southern Airlines Co.

The government has a history of market intervention. Regulators are restricting approvals for share sales to try to arrest the slump, two people familiar with the matter told Bloomberg News last week. The government cut the tax on equity trading in April to stem the decline in shares, after tripling the duty in May 2007 to cool a rally that was drawing more than 300,000 new investors a day.

`Security Threats'

Concern that the Olympics will be targeted by separatists intensified after an attack on Aug. 5 by members of the Uighur ethnic group killed 16 police officers in China's northwestern city of Kashgar.

There have been ``rumors about security threats at the Games since the noon trading break,'' said Peter Pak, a Hong Kong-based strategist at BOCI Securities Ltd. ``So far nobody is able to substantiate a threat.''

Air China, the nation's largest international carrier, tumbled to 8.69 yuan. China Southern, the biggest carrier by fleet size, slumped to 6.76 yuan, the most since Jan. 28.

``Sentiment toward airlines is usually more fragile than about other industries,'' said Li Lei, an analyst at China Securities Co. in Beijing.

Citic Securities fell 4.6 percent to 21.39 yuan. Haitong Securities Co., the country's biggest brokerage by market value, lost 8.2 percent to 21.52 yuan.

Share Trades

Shares worth 56.9 billion yuan ($8.29 billion) were traded on the Shanghai and Shenzhen stock markets yesterday, the lowest since Dec. 13, 2006, according to data compiled by Bloomberg. That compared with an average daily trading value of 101 billion yuan in July.

China Shipping Development Co. led a drop among container lines, falling 8.5 percent to 16.07 yuan, after freight rates retreated. China Cosco Holdings Co., the world's largest operator of iron-ore and coal hauling ships, plunged 8.6 percent to 16.17 yuan.

The Baltic Dry Index, which tracks costs on international trade routes, dropped 4.4 percent to 7,521 points, as Chinese demand waned in the run-up to Olympics and commodity prices declined. The retreat was the largest since June 13, when it slid 4.9 percent.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 4.5 percent to 2,605.72. The Shenzhen Composite Index lost 5.6 percent to 747.34.

The following stocks rose or fell and the stock symbols are in brackets after companies' names.

China Quanjude Group Co. (002186 CH), the operator of roast duck restaurants, slumped 5.35 yuan, or 10 percent, to 48.18, the lowest close since July 17. The company said first-half net income fell 13 percent to 33 million from a year earlier because costs increased, it said in a statement. Nine-month profit may decline as much as 30 percent, it said.

Shanghai Electric Power Co. (600021 CH), the supplier of a third of the electricity in China's richest city, slid 0.21 yuan, or 5 percent, to 3.96, the biggest decline since June 27. The company posted a loss of 560.1 million yuan in the first half because coal costs increased 25 percent.

To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; Zhang Dingmin in Beijing at Dzhang14@bloomberg.net