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(Bloomberg) — 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 percent after net income dropped 30 percent in the first quarter. Yanzhou Coal Mining Co. led declines for energy shares with a 2.2 percent retreat as profit fell 17 percent. 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 percent to 4,408.90 at 9:41 a.m., heading for the biggest loss in a week. The CSI 300 retreated 0.8 percent. The Hang Seng China Enterprises Index lost 0.9 percent. The Hang Seng Index slipped 0.4 percent. The Bloomberg China-US Equity Index decreased 0.8 percent.

The Shanghai gauge has rallied 89 percent 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 ($193 billion) on Tuesday, rising for a sixth day.

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

Earnings Concerns

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 $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.

To contact the reporter on this story: Kyoungwha Kim in Hong Kong at kkim19@bloomberg.net To contact the editors responsible for this story: Richard Frost at rfrost4@bloomberg.net Allen Wan