Chinese stocks retreat as record decline in industrial profits adds to worries about corporate earnings

China’s stocks dropped for the first time this week as a record decline in industrial companies’ profits tempered optimism that the Asian nation and the US were close to making a trade deal.

The Shanghai Composite Index dropped 0.1 per cent, 3.87 points, to 2,903.20 at the close on Wednesday. Hong Kong’s Hang Seng Index added 0.1 per cent to 26,954.

Sentiment soured after an official report by the government showed profits for Chinese industrial companies decreased 9.9 per cent from a year earlier in October. That was the biggest drop since the National Bureau of Statistics began to compile the data in 2011 and reinforced the view that a slowdown in the economy has already bitten into corporate earnings. Traders brushed aside the comment by US President Donald Trump that Washington and Beijing were “in the final throes” of a tentative trade agreement.

“The poor industrial profits figure is adding some pressure to the equity market,” said Gerry Alfonso, director of the international business department at Shenwan Hongyuan Group. “The slowdown in the global economy and trade frictions are likely some of the main drivers behind the disappointing industrial profit figure.”

A gauge tracking industrial companies on the CSI 300 Index lost 0.8 per cent as one of the worst-performing sectors. Among them, Shanghai International Port Group sank 2.6 per cent to 5.59 yuan and Cosco Shipping Holdings shed 2.3 per cent to 4.71 yuan.

China Zheshang Bank retreated 4.6 per cent to 4.74 yuan, breaching its initial public offering price of 4.94 yuan on the second day of trading. Its IPO shares were sold for 9.4 times earnings, compared with the industry average of the multiple of 6.9 times.

Agricultural stocks shot up after Beijing said it was committed to the basic policy of contracting lands to farmers in the long run. Xinjiang Talimu Agriculture Development surged by the 10 per cent daily cap to 5.36 yuan and Jiangsu Provincial Agricultural Reclamation gained 5.8 per cent to 6.94 yuan

In Hong Kong, Alibaba Group Holding, which runs China’s biggest e-commerce platform, added 3 per cent to HK$193.20, extending a 6.6 per cent gain in debut on Tuesday. (Alibaba owns the South China Morning Post.)

MTR, the operator of Hong Kong’s subway system, climbed 3.8 per cent to HK$45 after Goldman Sachs raised its rating on the stock to buy from neutral and boosted its target price to HK$54. That was the steepest gain on the stock since city leader Carrie Lam formally withdrew the extradition bill 12 weeks ago that had sparked ongoing unrest.

China First Capital Group, which runs businesses from financial service and K-12 education to auto-part making, tumbled 75 per cent to 45 Hong Kong cents before trading was suspended since 11:12am.

Virscend Education, in which China First Capital holds a 12.4 per cent stake as the second-biggest shareholder, slumped 33 per cent to HK$1.44.

ArtGo Holdings, in which China First Capital also has a 1.5 per cent interest, slid 3.9 per cent to 50 Hong Kong cents, extending a 98 per cent slump last week triggered by forced sales of the stock because of margin financing arrangements.