China Stocks Drop to Two-Year Low; Daqin Railway, Haitong Fall

By Zhang Shidong

Nov. 3 (Bloomberg) -- China's stocks fell to the lowest in almost two years, led by industrial companies, after a report showed China's manufacturing contracted amid the worst financial crisis since the Great Depression.

Daqin Railway Co., the operator of China's biggest coal transport network, slid 8.5 percent. Changsha Zoomlion Heavy Industry Science & Technology Development Co., China's second- biggest maker of concrete-handling machinery, dropped 4.2 percent. Haitong Securities Co., the country's largest listed brokerage by market value, tumbled by the 10 percent daily cap on concern lower trading restrictions will boost share supply and overwhelm investor demand.

The CSI 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, declined 10.12, or 0.6 percent, to 1,653.54 at the close, the lowest close since November 2006. It earlier rose as much as 1.3 percent.

``There isn't any buying opportunity in the market yet, as the worst for the domestic economy and corporate earnings is yet to come,'' said Zhang Ling, who manages the equivalent of $1.1 billion at ICBC Credit Suisse Asset Management Co. in Beijing.

Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., advanced among banks after the state news agency said the central bank removed temporary controls over loans. The central bank removed the controls to maintain ``relatively fast'' economic growth and counter the financial crisis, Xinhua News Agency said Nov. 1.

CSI 300 Slumps

The CSI 300 has slumped 69 percent this year, making it Asia's worst-performing benchmark index. Stocks have fallen amid concern demand for Chinese products will decline as the global credit crisis drags the world's largest economies into recession.

Daqin Railway slid 8.5 percent to 8.86 yuan. Zoomlion Heavy Industry fell 4.2 percent to 9.21 yuan. Xugong Science & Technology Co., the publicly traded unit of China's biggest maker of construction equipment, slumped by the 10 percent daily cap to 11.23 yuan. Air China Ltd., the nation's largest international carrier, lost 3.4 percent to 3.40 yuan.

The Purchasing Managers' Index fell to a seasonally adjusted 44.6 last month from 51.2 in September, the China Federation of Logistics and Purchasing said on Nov. 1. That was the lowest since the gauge was launched in July 2005. A reading below 50 reflects a contraction, above 50 an expansion.

Net income at the 487 companies listed on the Shenzhen Stock Exchange's main board rose 3.4 percent in the first three quarters, a fraction of the 89 percent increase a year earlier, according to data in a statement released by the bourse today.

Economy Slows

China's economy grew at the slowest pace in five years in the three months through September as export orders shrank and industrial production waned. The expansion cooled for a fifth straight quarter, to a 9 percent gain from a year earlier.

Haitong Securities tumbled 10 percent to 16.60 yuan, the lowest close since Sept. 19. About 3.52 billion shares will begin trading on the stock market starting Nov. 21 through the year-end, after the expiry of lock-up periods. The newly tradable stock represents 15 times the 234 million shares now available for public trading, Ping An Securities Co. said in a report dated Oct. 28.

``The huge amount of shares that'll hit the market is spooking investors,'' said Sun Chao, an analyst at Citic Securities Co. in Shanghai. ``There's still more downside for Haitong.''

Banking stocks gained after the state news agency said the central bank removed temporary controls over loans to maintain ``relatively fast'' economic growth.

Pudong Bank climbed 1.8 percent to 11.95 yuan. Industrial & Commercial Bank of China Ltd., the nation's biggest listed lender, gained 1.1 percent to 3.66 yuan. China Construction Bank Corp., the country's second-largest bank, climbed 1.8 percent to 3.90 yuan.

People's Bank

The People's Bank of China will closely monitor global financial turmoil and will use a combination of macro-economic policies to boost domestic demand, Xinhua quoted Li Chao, the central bank's spokesman, as saying. China has the ``full ability'' to counter the financial crisis, Li said, according to Xinhua.

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, dropped 0.5 percent to 1,719.77. The Shenzhen Composite Index lost 1 percent to 466.05.

The following companies were among the most active in China's markets. Stock symbols are in brackets after companies' names.

Baoshan Iron & Steel Co. (600019 CH), China's biggest steelmaker, dropped 0.11 yuan, or 2.4 percent, to 4.46. The stock had its price target cut to 3.53 yuan and its rating downgraded to ``sell'' from ``buy'' at UBS AG.

Guangxi Liugong Machinery Co. (000528 CH), the manufacturer of construction equipment, dropped 0.35 yuan, or 4 percent, to 8.47 yuan. The company's stock rating was cut to ``neutral'' from ``buy'' and its price target reduced by 64 percent to 8.70 yuan at Goldman Sachs Group Inc.

Shanghai Zhenhua Port Machinery Co. (600320 CH), the world's biggest maker of quayside cranes, added 0.05 yuan, or 0.8 percent, to 6.75 yuan. Zhenhua will book a 517 million yuan ($76 million) foreign exchange gain as profit next year, it said in a filing to Shanghai's stock exchange on Nov. 1. The gain represents 26 percent of the company's 2007 profit, it said.

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