World Economy

China Shares Slump

China Shares SlumpChina Shares Slump

Profits earned by China’s industrial companies dropped 4.6% from a year earlier in October, extending a 0.1% decline recorded in September, as the world’s second-largest economy faces continuing headwinds.

Chinese shares also slumped on Friday, weighing on other Asian and European stock markets, Yahoo reported.

Industrial profits, which cover big enterprises with more than 200 million yuan ($31.3 million) in revenue each year, fell 2% on year in the January-October period, according to data Friday from the National Bureau of Statistics. In the first nine months of the year, industrial profits declined 1.7% from a year earlier.           

Among the sectors, the mining industry posted the biggest in profit decline. In the first 10 months of the year, the profits of China’s mining sector plunged 56.3% from the same period last year.

China’s state-controlled industrial enterprises reported a 25% on-year drop in profits in the first 10 months, according to data from the statistics bureau.

The Chinese economy slowed to 6.9% in the third quarter of the year, its weakest performance since the global financial crisis. Economic data in the final quarter haven’t yet shown any significant rebound in growth.

China’s stocks tumbled the most since the depths of this year’s rout as some of the largest brokerages disclosed regulatory probes, the nation’s industrial profits fell and companies struggled to repay bonds, Bloomberg reported.

The Shanghai Composite Index sank as much as 6.1% before closing 5.5% lower, as 23 stocks fell for each one that rose.

Citic Securities Co. and Guosen Securities Co. plunged by the daily limit in Shanghai after saying they were under investigation for alleged rule violations, while Haitong Securities Co. is also being probed, according to people with knowledge of the matter.

European shares were set to follow suit, with financial spread-betters expecting Britain’s FTSE 100 to fall 0.3%, France’s CAC40 to open down 0.4%, and Germany’s DAX to start the day 0.1% lower, Reuters reported.

US stock futures ESc1 erased gains after earlier rising 0.3% to their highest level since Nov. 9 following Thursday’s Thanksgiving Day holiday

 Yuan Under Pressure

The Chinese yuan also came under pressure, weakening to its lowest level in almost three months as investors braced for a decision on Monday by the International Monetary Fund on whether to include the currency in its reserve basket.

Some market watchers fear Beijing’s commitment to market reforms and liberalization may cool if the yuan is added to the reserve basket.

Spot yuan opened at 6.3928 per dollar and was changing hands at 6.39, 46 pips weaker than the previous close and about 0.04% away from People’s Bank of China’s midpoint rate of 6.39.

“It’s uncertain if the Chinese government is keen to show the market influence in their rate setting or whether now that they know they have gained special drawing rights inclusion they are keen to weaken their overvalued currency knowing it will not jeopardize their case,” Angus Nicholson, market analyst at IG in Melbourne, wrote in a note. The euro continued to falter, hovering near seven-month lows on expectations that the European Central Bank could announce further stimulus as early as next week.