Mainland railway companies tumbled in Hong Kong trading Monday on speculation that a deadly bullet train accident in the eastern part of the country will prompt the central government to slow construction and reduce investment.

CSR Corp, the largest train maker, slumped 14 percent to close at HK$5.98, set for the biggest decline since August 2008. Zhuzhou CSR Times Electric Co Ltd, which supplies train-borne electrical system and electrical components, also plunged 14 percent to HK$23.85. China Railway Construction Corp, builder of more than half the nation's rail links since 1949, sank 6.7 percent to HK$5.46 and China Railway Group Ltd, another major infrastructure builder, fell 6.7 percent to HK$3.05.

The central government will slow railway investment as it pays more attention to safety, and travelers switch to other transport, according to Shenyin & Wanguo Securities Co and Barclays Plc.

The high-speed train accident may also damp demand for property in cities along the new railway lines, said Credit Suisse Group AG. China plans to spend 2.8 trillion yuan on railways in the five years ending 2015.

"The high-speed rail concept involves a large number of companies and if investment is cut, even the smallest parts makers and steelmakers will get hurt," said Tu Jun, a strategist at Shanghai Securities Co.

The accident occurred on July 23 near the eastern city of Wenzhou when a train lost power after reportedly being struck by lightning and was rear-ended by a second train, the state-run Xinhua News Agency said.

"We expect travelers to gradually turn to alternative transport, including expressways," Patrick Xu and Jon Windham, analysts at Barclays, wrote in a report released on Monday. The accident is also expected to deter development of high-speed railway lines under construction or in planning across the country, they reckoned.

Shares of CSR were cut to "neutral" at Shenyin & Wanguo, ranked China's most influential research provider by New Fortune magazine last year. The railway ministry will postpone auctions for railway equipment, Huang Kui and Li Xiaoguang, analysts at the Shanghai-based brokerage, wrote in a report.

"In the next three and six months, it'll become the most important job for the railway system to overhaul haphazard safety and ensure the safe operations of trains," the report said.

China plans to extend its high-speed railway networks to 120,000 kilometers from 91,000 kilometers by 2015 to accelerate urbanization and bolster development in the nation's underdeveloped regions.

Airline stocks rallied on speculation travelers will shun high-speed rail. Air China Ltd, the nation's largest international carrier, gained 3.6 percent to HK$8.06. China Southern Airlines Co, the biggest carrier by fleet size, advanced 3.4 percent to HK$5.17.

"Airline stocks have already fully priced-in pessimistic expectations," Zhang Hongbo, an analyst at Citic Securities Co, wrote in a note on Monday. "They are expected to rebound during the July-to-October peak season for air transportation."

The train accident and "constant malfunctioning" of the Beijing-Shanghai bullet train may damp demand for property along rail lines, Credit Suisse said. Land sales in "several" cities along the new Beijing-Shanghai high-speed railway line surged in 2009 and 2010, analysts including Jinsong Du at Credit Suisse wrote in a report.

Bloomberg

(HK Edition 07/26/2011 page2)