China's stock markets could be affected for months by Monday's deadly earthquake in the southwestern province of Sichuan.
Chinese stocks ranging from insurers to cement makers will be sensitive to reports of the destruction from the 7.9-magnitude earthquake that continue to trickle in from remote areas. Stocks in companies with major operations in southwestern China and property insurers could sink further, while construction-related stocks are expected to rise on the government's plans to rebuild.
On Tuesday, China's domestic exchanges in Shanghai and Shenzhen suspended shares of 66 listed companies based in Sichuan province and the neighboring municipality of Chongqing pending details on their exposure.
"It will be some time before the full extent of the damage can be assessed," said Jing Ulrich, chairwoman of China equities at J.P. Morgan Chase & Co. "However, early reports suggest that the impact on the macroeconomy may end up being significant."
She pointed to property developers, toll-road operators and manufacturers with substantial operations in the region as the stocks likely to suffer most. Many of those stocks were suspended from trading Tuesday.
China's State Administration of Work Safety told companies to shut oil wells and mines in affected areas until conditions improve and workers can safely return to their jobs, according to a statement posted on its Web site.
PetroChina, the country's biggest oil producer by output, has substantial operations in Sichuan, including a natural-gas field and an oil-products pipeline. Its Shanghai-listed shares declined 2.6% Tuesday to close at 17.39 yuan ($2.49) apiece. A senior PetroChina official said Monday that in the initial hours after the quake, the company hadn't received reports of any major damage to its production facilities there.
The earthquake is the country's most intense since a 1976 one of similar magnitude struck Tangshan, a city in eastern China, killing about 240,000. The death toll from Monday's disaster rose above 12,000 Tuesday.
For Chinese insurers, the earthquake will be the second major blow this year. In January and February, snowstorms paralyzed the country's infrastructure and left much of its migrant worker population stranded during the Chinese Lunar New Year holiday.
Among the three mainland-listed life insurance companies, China Life Insurance has the biggest exposure to the disaster area, with a 38.6% share of the life insurance market in Sichuan, while China Pacific Insurance (Group) holds 11% and Ping An Insurance (Group) of China has 10.7%, according to a research note by Ping An Securities, a unit of Ping An Insurance.
"As an insurer, we constantly assess the effect of natural disasters on our earnings. While there'll be some effect on our earnings this year, I believe the impact will likely be limited" Ping An Insurance's chairman, Ma Mingzhe, said Tuesday. Mr. Ma said it is too early to estimate claims related to the earthquake.
China Life's Shanghai-listed shares dropped 4.8% to 31.62 yuan Tuesday, while those of China Pacific Insurance fell 7.2% to 24.69 yuan. The Shanghai Composite index declined 1.8%. Shares of Ping An were suspended from trading because of a shareholder meeting.
"Though I think China Life and Ping An are worthy of long-term investment, their stocks will likely continue to lose attraction, not only because of the disaster but also due to the uncertainty in the stock market," said Wu Yonggang, an analyst at Guotai Junan Securities.
Merrill Lynch economists argue that the earthquake should have less of an effect on the country's export-oriented industries, because the chief production sites for those are along the eastern coast.
"We also see little impact on China's currency, because the earthquake took place in regions almost negligible for China's external trade," Merrill Lynch economists Ting Lu and T.J. Bond wrote in the report.
In the quake's aftermath, banks might see looser credit policies. The government, which has clamped down on lending growth to attack inflation, eased up after the snowstorms, and relaxed controls on loans to affected areas.
"This disaster is likely to bring a partial relaxation in efforts to tighten credit, with local banks encouraged to offer loans in the worst-affected areas," says Ms. Ulrich of J.P. Morgan Chase. "We expect reconstruction activity to proceed swiftly due to the national focus on responding to the crisis, and this will support growth in fixed-asset investments."
Shares in Anhui Conch Cement, one of the country's largest cement producers, rose 5.5% in Shanghai trading to close at 64.19 yuan Tuesday. Tangshan Jidong Cement rose by the daily limit of 10% in Shenzhen to close at 18.81 yuan.