China stocks drop amid low volatility as caution over subdued earnings, growth mounts

China stocks fell for the first time in four days on Tuesday as traders assessed the outlook for corporate earnings and economic growth. Volatility on the benchmark Shanghai Composite Index also fell to about a four-month low.

The index declined 0.2 per cent, or 4.57 points, to 2,937.62 at the close. The daily swing in the benchmark has not exceeded 1 per cent over the past week on a closing basis, leaving the gauge’s 60-day volatility close to its lowest level since March.

In Hong Kong, the Hang Seng Index added 0.1 per cent, or 64.74 points, to 28,619.62, for a fifth straight day of gains.

Sentiment has turned cautious after Dong-E-E-Jiao and Han's Laser Technology Industry, both blue-chip stocks, issued surprise warnings on Monday that their first-half profits might have more than halved.

The negative guidance was interpreted by some investors as a signal of moderation in corporate earnings growth. The earnings season has already kicked off, with all the 3,000-plus companies trading on the Shanghai and Shenzhen bourses required to release interim results through to the end of August.

“Sentiment is cautious because investors are worried that corporate earnings growth would have hit a low in the second quarter, and some companies would report earnings that are lower than expected,” said Ken Chen Hao, strategist at KGI Securities in Shanghai. “Therefore, during the whole of the earnings season, the market isn’t likely to do much.”