Bloomberg News

U.S.-Listed China Stocks Drop as Central Bank Raises Rates

July 06, 2011

(Updates prices in 2nd paragraph and analysts’ comments in 10th paragraph.)

July 7 (Bloomberg) -- China’s stocks listed in the U.S. retreated from a one-month high after the nation raised interest rates for the third time this year to tame inflation that has quickened to the fastest pace since 2008.

The American Stock Exchange China Index, which tracks equities and American depositary receipts of Chinese companies, slid 0.7 percent after an eight-day gain sent the gauge to the highest since June 2. Cnooc Ltd., the country’s largest offshore oil producer, and China Yuchai International Ltd., a diesel engines maker, were among the 12 decliners that dragged down the measure.

China’s interest-rate increase “will probably make people think a little about whether they’re going to put more money into China,” Douglas Gonzalez, a vice president of trading at Cicerone Securities LLC in New York, said by phone. “The Chinese have to have a better grip on their inflation. That’s exactly what they’re doing.”

Chinese Premier Wen Jiabao said last month that the government may not reach an annual inflation target of 4 percent after the rate was 5.2 percent in the first five months. Besides raising rates, policy makers have boosted banks’ reserve requirements to record levels, restricted mortgages and home purchases, and allowed gains by the yuan against the dollar.

The Bank of New York Mellon China ADR Index measuring American depositary receipts lost 0.6 percent to 442.04 after advancing to the highest level in more than a month in the previous day. The drop yesterday was the first in nine days. It’s up 4 percent this year. During the same period, ADRs for Brazilian companies lost 3.5 percent, while those for Russia declined 12 percent, and India’s lost 7.8 percent.

Rate Increases

The People’s Bank of China lifted its benchmark one-year lending rate by a quarter point to 6.56 percent. The one-year deposit rate rises to 3.5 percent from 3.25 percent.

The rate increase is likely to be the last this year as inflation may slow in the coming months, said Yu Song, a Hong Kong-based analyst at Goldman Sachs Group Inc. in a note dated yesterday.

“The government is reluctant to use the tool too often for concerns on potential hot money inflows amid a widening domestic-international interest rate spread and the negative impact on real economic activities,” Song wrote.

Oil Futures

Oil futures fell as much as 1 percent in New York after China’s increase to rates on concern that slower global growth will crimp fuel consumption. The Shanghai Composite Index slid 0.2 percent yesterday.

“Bearish China sentiment can hardly get worse and the market will pick up in the second half as fears turn out to be overdone,” Hong Kong-based equity analysts at HSBC Securities Asia Ltd. said in a research note yesterday.

Baidu Inc., owner of China’s most popular online search engine, was among the most favored Chinese stock recommended by Citigroup Inc. analysts led by Minggao Shen in their research dated July 5. The company’s ADRs were little changed at $145.84, near its two-month high reached earlier in the week.

--Editors: Richard Richtmyer, Glenn J. Kalinoski

To contact the reporter on this story: Belinda Cao in New York at Lcao4@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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