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China: Stocks fall for worst two-day loss in two months on profit

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[BEIJING] China's stocks fell for their steepest two- day loss since February on concern slowing economic growth is undermining earnings after companies from Anhui Conch Cement Co to Yanzhou Coal Mining Co reported declines in profit.

Anhui Conch, the biggest cement producer, slid 2.3 per cent after net income dropped 30 per cent in the first quarter. Yanzhou Coal Mining Co led declines for energy shares with a 2.2 per cent retreat as profit fell 17 per cent. Citic Securities Co retreated after it said it will no longer accept certain stocks including trainmakers China CNR Corp and CSR Corp as collateral for margin financing.

The Shanghai Composite Index slid 1.5 per cent to 4,408.90 at 9:41 am, heading for the biggest loss in a week. The CSI 300 retreated 0.8 per cent. The Hang Seng China Enterprises Index lost 0.9 per cent. The Hang Seng Index slipped 0.4 per cent. The Bloomberg China-US Equity Index decreased 0.8 per cent.

The Shanghai gauge has rallied 89 per cent in the past six months, the most among major benchmark indexes globally. The benchmark measures trades at 17.3 times estimated earnings for the next 12 months, compared with the 10.2 average in the past five years. The outstanding balance of margin debt in Shanghai climbed to an all-time high of 1.22 trillion yuan (S$255 billion) on Tuesday, rising for a sixth day.

Earnings in the Shanghai Composite trailed analyst estimates by 2.7 per cent last year as 63 per cent of companies missed projections. Results for the first quarter so far have lagged behind by 17 per cent, according to data compiled by Bloomberg. While analysts predict profits will climb 28 per cent in the next 12 months, they've cut per-share estimates by 9 per cent since mid-October.

Investor confidence will start to sour if earnings don't improve, said Grace Tam, a global market strategist at JPMorgan Asset Management, which oversees about US$1.7 trillion worldwide. The Shanghai Composite is valued at 17 times estimated earnings for the next 12 months, the highest level since April 2010 on a weekly basis, and the median multiple index companies is about twice that level.

A quarter of global investors in a Bloomberg survey said Chinese markets would be among the one or two that would offer the worst opportunities over the next 12 months. Almost three in five depicted the Chinese economy as deteriorating, the poll showed.

BLOOMBERG