Index drops to 11-week low on IPO and downturn


SHANGHAI stocks fell by the most in four months yesterday on worries an economic downturn is hurting companies' earnings and a massive IPO in the pipeline may result in a cash drain.

The Shanghai Composite Index tumbled 2.65 percent, its biggest drop since November 30, sending the gauge to an 11-week low of 2,284.88 points.

The index has shed 7.1 percent from this year's high on March 2 on concern the world's second-biggest economy is stalling as the government's property curbs and tight monetary policies hurt profits. China has cut its economic growth target for this year to 7.5 percent from 8 percent.

Industrial companies posted their first January-February profit decline since 2009, falling 5.2 percent from a year earlier to 606 billion yuan (US$96 billion), according to the National Bureau of Statistics.

"The economy is bad, demand is weak, and the upstream is particularly in trouble," Bloomberg News quoted Tao Dong, chief regional economist at Credit Suisse AG in Hong Kong, as saying yesterday. "Some companies' earnings, especially those upstream, are probably going to feel a hard landing instead of a soft landing."

Metal producers lost on worries that demand for their products will be hit due to weak economic prospects.

Zijin Mining Group Co, China's biggest gold miner, slumped 3.44 percent to 4.21 yuan, and Aluminum Corp of China sank 5.82 percent to 6.64 yuan.

Jiangxi Copper, the country's biggest producer of the metal, plunged 5.51 percent to 24.69 yuan after it reported a drop in net income to 2.27 billion yuan in the six months ended December 31 from 2.79 billion yuan a year earlier.

Investors were also worried about a liquidity crunch as a result of a huge initial public offering by Citic Heavy Industries. The company said it plans to issue 685 million A shares to raise 4.13 billion yuan in Shanghai, which is likely to be the biggest IPO on China's mainland since February.



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