China markets drop to lowest since 2009

China’s stocks fell, dragging the benchmark index down for the sixth time in seven days, as liquor shares extended yesterday’s rout on concern demand will weaken.

Kweichow Moutai dropped for a third day, pushing losses for a gauge of consumer staples producers over the past month to 20 per cent after excessive levels of plasticiser were found in JiuGuiJiu Co. products. Chengdu B-Ray Media Co. plunged 10 per cent, sending a gauge of small-company stocks to the lowest level since March 2009. Ping An Insurance (Group) rose 1 per cent after Haitong Securities recommended that investors buy insurance stocks for next year.

The Shanghai Composite Index slipped 0.4 per cent to 1,951.85 at the 11:30 a.m. break, heading for the lowest level since Jan. 15, 2009. The CSI 300 Index slid 0.2 per cent to 2,105.73 while the Hang Seng China Enterprises Index fell 0.2 per cent. The Bloomberg China-US 55 Index lost 0.9 per cent.

“Investors have kind of given up for this year,” Zhang Haidong, analyst at Tebon Securities Co. analyst, said by telephone in Shanghai. “The stock market hasn’t reached a bottom yet. Investors are concerned that demand for high-end products like liquor will suffer.”

Trading volumes in the Shanghai Composite were 6 per cent lower than the 30-day average, according to data compiled by Bloomberg. Thirty-day volatility in the gauge was at 13.7, compared with this year’s average of 17.2.

The Shanghai Composite trades at 10.8 times reported earnings, the lowest level since at least 1997, according to data compiled by Bloomberg. The index has fallen 11 per cent this year, heading for a third straight year of losses, amid estimates the economy will grow at its slowest pace in a more than a decade this year.

China may maintain its annual economic growth target at 7.5 per cent next year in a sign the new leadership headed by Xi Jinping won’t tolerate a bigger slowdown.

Nine of 16 analysts surveyed Nov. 22-30 by Bloomberg News forecast the government will set a goal unchanged from 2012, while six expect a decline to 7 per cent and one sees an increase to 8 per cent. Top economic officials meet this month to map out policies for 2013 and may set the target that will be officially announced in March at the annual session of parliament.

Kweichow Moutai, the biggest maker of baijiu liquor, retreated 1.4 per cent to 197.46 yuan, adding to yesterday’s 7.3 per cent plunge. Kweichow’s operations are normal and the stocks’ declines are in line with a drop in the broader market, Li Hongfang, a spokeswoman for the company said in a phone interview on Monday.

“Liquor companies are still slumping because of the negative news about plasticizer,” said Tebon’s Zhang, referring to excessive levels of the chemical found in JiuGuiJiu liquor products. “That won’t go away for a while.”

Jiuguijiu rose 5.2 per cent to 28.75 yuan, paring losses over the past month to 50 per cent. The company said it completed reorganizing its packaging production line as of November 30.

Stocks in the high-end liquor industry were hurt in November. Inspections showed as much as 1.04 milligrams a kilogram of dibutyl phthalate, or DBP, in some JiuGuiJiu samples, the Xinhua news agency said, citing the General Administration of Quality Supervision, Inspection and Quarantine. The health ministry set a limit of 0.3 milligram a kilogram of the substance used to soften plastics, Xinhua said.

The CSI Smallcap 500 Index dropped 1.3 per cent, the lowest level since March 2009, while the ChiNext Price Index declined 1.2 per cent. Chengdu B-Ray, which provices newspaper publishing and advertising services, slid 1.03 yuan to 9.28 yuan.

Ping An, the second-biggest insurer, advanced 1 per cent to 37.01 yuan after Haitong Securities recommended investors buy insurers for next year in a report on Tuesday. The ratio of outstanding puts to sell Ping An versus calls to buy slipped to 1.15-to-1 on Nov. 30 and reached 1.11 on Nov. 29, the lowest since August 2007, according to data compiled by Bloomberg.

Chinese companies traded on the mainland were 3.3 per cent cheaper than their Hong Kong-listed counterparts as of yesterday, according to an index from Hang Seng Bank Ltd. The discount, which last week was the widest since January 2011, shows global investors are more optimistic than locals on the country’s growth prospects.

The H-shares index has jumped 16 per cent since Sept. 5. Yuan-denominated shares are restricted to domestic investors and a limited number of foreign institutions, while their Hong Kong counterparts are open to overseas investors.

China’s stocks will perform better next year as the economy and liquidity improve, according to Bank of Communications.

The economy is “reflating” given signs of rising inflation and bottoming growth, Hao Hong, Hong Kong-based managing director of research, said in a report to clients. Chinese stocks trading in Hong Kong are a better China investment proxy than equities listed in the mainland because of cheap valuations, no capital flow restrictions and an undervalued Hong Kong dollar, he said.

The Chinese government should consider relaxing property purchase limits while increasing public housing supply to boost market confidence, he said in the report. Hong was the only strategist among 13 brokerages surveyed by Bloomberg at the start of the year to forecast declines for Chinese stocks in 2012.

The Shanghai Composite will rally 48 per cent within nine months after its decline below 1,960 signaled selling has climaxed, according to Tom DeMark, the creator of indicators to show turning points in securities.

The index will advance to 2,900 after its decline produced a buy signal on the Sequential and Combo charts, designed to identify market tops and bottoms, said DeMark, who has spent more than 40 years developing market-timing indicators.

“Everyone is negative on SHCOMP index, absolutely everyone,” DeMark wrote in an e-mail, referring to the Chinese benchmark gauge’s ticker symbol. “And now is the perfect environment to make a low and be positive as the last seller, figuratively speaking, has sold.”