China shares post worst day in 2 weeks, Hong Kong unwinds last week's gains

Mon Apr 15, 2013 10:01am BST

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* HSI -1.4 pct, H-shares -2 pct, CSI300 -1 pct

* Volumes stay weak as beta plays slide after weak China Q1 GDP

* Chinese gold miners hurt by slumping gold prices

* Zoomlion tumbles to 1-1/2-year low after Q1 profit warning

By Clement Tan

HONG KONG, April 15 (Reuters) - China shares posted their worst loss in more than two weeks on Monday, while Hong Kong nearly erased most of last week's gains after weaker-than-expected China GDP data aggravated the gloom from several Chinese corporate profit warnings.

China's economic recovery unexpectedly stumbled in the first three months of 2013 to 7.7 percent from the previous quarter's 7.9 percent and below an 8.0 percent Reuters poll consensus, sparking a broad sell-off in cyclical sectors.

The Hang Seng Index declined 1.4 percent to 21,772.7, almost paring last week's gains that came in low turnover. The China Enterprises Index of the leading Chinese listings in Hong Kong sank 2 percent.

The Shanghai Composite Index shed 1.1 percent and the CSI300 of the top Shanghai and Shenzhen A-share listings lost 1 percent. Both closed at their lowest since March 28, with gold miners among the biggest drags after gold prices sank to a 2-year low.

Shanghai volume increased slightly from Friday, but was still some 24 percent below its average in the last month, the tenth session it had remained under that level. Hong Kong turnover was 16.5 percent below average.

"This drop in gold prices is a precursor to more volatility in the stock markets. I won't be adding excessive risk before China's second quarter data," said Hong Hao, chief strategist at Bank of Communication International Securities.

"The bad market reaction today is a result of raised expectations after last week's credit growth figures. This China GDP miss probably points to ineffectual credit growth because money is being used by companies to pay off short-term loans and interest," Hong added.

Expectations for a stronger growth figure were elevated last week when data showed total social financing, the central bank's broad measure of liquidity in the economy that includes non-bank lending, surged to 2.54 trillion yuan ($410.2 billion) in March from February's 1.07 trillion yuan.

On Monday, Chinese oil major CNOOC Ltd was among the biggest drags on the Hang Seng Index, diving 3.1 percent to its lowest closing level since June with Brent oil gravitating back towards a 9-month low set last Friday.

Now trading at HK$13.74, chart support is next seen at HK$13.18, its June 5 trough. A break below this level may point to more losses ahead. It is now down nearly 20 percent this year, compared with the Hang Seng Index's 4 percent loss.

Chinese gold miners were among the bigger percentage losers in the A-share market as gold prices extended a downward spiral on Monday after posting last Friday its biggest one-day slide since 2008.

Zijin Mining tumbled 5.6 percent in Shanghai and 7.2 percent to its lowest close since July in Hong Kong. Its H-share listing is now down 24 percent this year, compared with the 9 percent slide for the China Enterprises Index.

In a bi-weekly client note, Chinese brokerage CICC said they expect the H-share index, which closed on Monday at 10,440.8, to reach 12,000 by the end of the June, while also slightly raising their end-2013 target to 12,800 from 12,500.

"We see material domestic policy tightening less likely anytime soon," they said in the same note, released before Monday's slew of China economic data announcements.

"Instead, with the expansionary fiscal and moderate monetary policy, we expect industrial output growth to reaccelerate over coming months, driven mainly by continued strength in fixed asset investment and still accommodative liquidity," they added.

BAD DATA ADDS TO PROFIT WARNING GLOOM

The slew of China data release on Monday also saw March industrial output growing 8.9 percent from a year earlier against expectations for 10 percent, retail sales rising 12.6 percent versus estimates for 12.5 percent.

Quarterly fixed-asset investment grew 20.9 percent in the first quarter from a year earlier, lower than expectations for 21.3 percent. This added to jitters after Zoomlion Heavy Industry warned on Friday that its first quarter net profit may drop by up to 80 percent.

JP Morgan analysts said in a note that Zoomlion's weak first quarter result may trigger further cuts in earnings expectations, flagging mounting destocking pressures and its rapidly rising ratio of potential bad debt.

Zoomlion's shares in Hong Kong dived 8.3 percent to its lowest closing level since Sept. 26, 2011. The H-share listing of China's second-largest construction equipment maker has plunged 34 percent in 2013. Its A-share listing shed 5.5 percent in Shenzhen and is now down 17 percent this year.

Another cyclical counter, China National Materials Co Ltd tumbled 5.9 percent after warning it expects to post a substantially decreased first quarter net profit from the year before due to increasing market competition.

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