By Bloomberg News
July 29 (Bloomberg) -- China’s stocks plunged the most in eight months on concern this year’s rally has outpaced prospects for earnings growth, overshadowing a debut trading surge for China State Construction Engineering Corp..
Jiangxi Copper Co. dropped 6.5 percent, paring its annual advance to 339 percent, after saying first-half profit fell. China Cosco Holdings Co. the world’s largest operator of dry- bulk ships, slid 7.5 percent as it forecast a loss. State Construction jumped 60 percent after the world’s largest initial public offering in 16 months.
The Shanghai Composite Index lost 170.88, or 5 percent, to 3,267.5 as of 2:42 p.m., set for its biggest decline since Nov. 18 and snapping a five-day, 7 percent advance. The gauge has almost doubled from last year’s low as government stimulus spending, record bank lending and an economic rebound spurred demand for equities. The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, slid 4.5 percent to 3,588.78.
The “whole market is facing increasing risks as valuations are getting more expensive,” said Yan Ji, who helps oversee about $850 million of investments at HSBC Jintrust Fund Management Co. in Shanghai.
The Shanghai Composite has gained 81 percent this year, the world’s second-best performing stock market, after slumping 65 percent in 2008. The index, which doubled in 2006 and 2007, remains 53 percent below its peak of October 2007.
Stocks on the Shanghai index trade at 35.7 times earnings, the highest since January 2008 and more than twice the 17 times fetched by the MSCI Emerging Markets Index.
Earnings Forecasts
Jiangxi Copper, the nation’s biggest producer of the metal, sank 6.4 percent to 43.80 yuan. It’s the sixth best performer on the index this year. The company said first-half profit may fall from a year earlier as prices declined amid the global recession.
China Cosco lost 7.5 percent to 17.71 yuan, the most since Feb. 18. The company said it expects to post a net loss for the first half because international trade was severely affected.
Lower commodity prices also spurred declines by materials producers. Aluminum Corp. of China Ltd., the nation’s biggest maker of the lightweight metal, lost 6 percent to 17.75 yuan, set for its largest decline in five months. Zijin Mining Group Co., the country’s biggest gold producer, slid 5.8 percent to 11.17 yuan.
A gauge of six metals in London slipped 1.2 percent yesterday, the first decline in 12 days. Copper fell the most in two weeks.
Sichuan Expressway Co., the first company to list shares on the Shanghai stock market after a nine-month suspension on IPO share sales, plunged by the 10 percent daily cap for a second day to 8.83 yuan. The stock more than tripled on the first day of trading on July 27.
State Construction
State Construction, the nation’s largest housing contractor, jumped 60 percent to 6.70 yuan. The IPO values State Construction at 51.3 times 2008 earnings, the company said.
“I can tell you no institutions are getting at these levels, the valuation is just crazy,” said Chris Tang, chief investment officer at Marco Polo Pure Asset Management in Hong Kong, which oversees about $120 million. “Traditionally IPOs make money, so retail investors are going to try their luck. It’s going to remain hot for a while.”
State Construction’s 50.2 billion yuan sale is the biggest in China since PetroChina Co. raised 66.8 billion yuan in October 2007, and the largest globally since Visa Inc.’s $19 billion IPO in March last year. China International Capital Corp. was the sole underwriter.
--Zhang Shidong. With assistance from Chua Kong Ho in Shanghai. Editors: Richard Frost, Linus Chua
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net
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