By Zhang Shidong
Feb. 27 (Bloomberg) -- China’s stocks dropped, driving the benchmark index to its worst weekly drop this year, as commodity producers slumped on concern the global recession will damp demand for raw materials and batter profits.
Maanshan Iron & Steel Co., China’s fourth-largest listed steelmaker, lost 4.5 percent after saying income probably dropped 71 percent last year. Angang Steel Co. fell 4.7 percent after Macquarie Group Ltd. lowered its rating on the stock. Gold producer Zijin Mining Group Co. slid by the 10 percent daily limit, paring its annual advance to 61 percent, after bullion prices fell for a fourth day.
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 36.66, or 1.7 percent, to 2,084.60 as of 1:11 p.m., paring its 2009 gain to 15 percent. The measure is down 7.8 percent this week, the biggest drop since the five days to Dec. 26, and the second straight weekly loss.
“Share prices have really risen too fast this year and funds are now switching from those that gained the most,” said Fan Dizhao, an investment manager at Guotai Asset Management Co. in Shanghai, overseeing the equivalent of $4.7 billion.
The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, declined 2.4 percent.
The Shanghai Composite, the world’s best performer this year, remains up 4.8 percent this month, on speculation government spending plans, five interest rate cuts since September and record bank lending will help the world’s third- largest economy weather the global recession.
The rally lured Chinese investors at the fastest pace in more than a year. Investors opened 484,510 new share trading accounts last week, according to the nation’s clearing house, the most since the five days to Jan. 25, 2008, and more than four times the levels recorded last month.
‘Asset Bubble’
Still, concern such gains are unsustainable has dragged the Shanghai Composite down 13 percent from a five-month high reached on Feb. 16. China faces an “asset bubble” if credit growth is not matched by an increase in investment opportunities, chief economist Ha Jiming at China International Capital Corp. said in a note yesterday.
Maanshan Steel dropped 4.5 percent to 3.59 yuan. The steelmaker said 2008 profit probably fell 71 percent because of higher raw material and fuel costs as well as a drop in the value of inventories.
Angang Steel, China’s second-largest steelmaker by market value, lost 4.7 percent to 7.52 yuan. The stock was cut to “underperform” from “outperform” at Macquarie Group Ltd., which cited uncertainties over demand and earnings.
Excess Capacity
Aluminum Corp. of China Ltd., the nation’s biggest maker of the lightweight metal and also called Chalco, lost 8.7 percent to 9.19 yuan. Yunnan Aluminium Co., the fifth-largest producer of the light metal, slid 8.8 percent to 5.94 yuan, paring its annual advance to 31 percent.
Aluminum capacity in China may exceed output by 51 percent this year as a result of expansion in the sector, according to research company CBI China Co.
Zijin Mining Group, China’s largest gold producer, retreated the 10 percent daily limit to 7.75 yuan. Zhongjin Gold Corp., the No. 2, fell 8.5 percent to 47 yuan. Gold futures for April delivery fell 2.4 percent to $942.60 an ounce in New York yesterday.
Gold is expensive relative to other commodities, Marc Faber, publisher of the Gloom, Boom & Doom Report, said in an interview today.
The Shanghai Composite lost 3.9 percent yesterday in part on speculation regulators would restrict financial companies’ investments in equities. The China Insurance Regulatory Commission, the nation’s insurance watchdog, denied the speculation market after the close.
The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.
Airlines: China Southern Airlines Co. (600029 CH), the nation’s biggest carrier by fleet size, tumbled by the 10 percent daily cap to 4.40 yuan. China Eastern Airlines Corp. (600115 CH), the nation’s third-largest carrier by fleet size, plunged 10 percent to 4.76 yuan.
The two airlines won approval to sell new stock to their state-controlled parents after securing government bailouts to help pare debts. Issuing new shares usually dilutes the value of a company’s existing stock.
Anhui Jianghuai Automobile Co. (600418 CH), China’s second biggest light-truck maker, slumped 10 percent to 3.92 yuan. Net income fell 82 percent last year from 328 million yuan in 2007, said the company in a preliminary earnings statement.
Xi’an Aircraft International Corp. (000768 CH), a Chinese maker of plane parts, tumbled 10 percent to 19.38 yuan. The company said 129.5 million shares will emerge from lock-ups today, or shares that were restricted from trading.
To contact the reporter on this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net
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