Bloomberg News

China’s Stocks Decline Most in Week on Banks’ Capital Raising

July 19, 2011

July 19 (Bloomberg) -- China’s stocks fell, driving down the benchmark index by the most in a week, on concern banks’ fundraising will drain capital from existing shares and policy tightening measures may slow the economy.

China Merchants Bank Co., the nation’s sixth-largest lender, dropped to a one-month low on plans to raise as much as 35 billion yuan ($5.4 billion) in a rights offer to shareholders in China and Hong Kong. SAIC Motor Corp. and FAW Car Co. slid 2 percent after Sinolink Securities Co. said more local governments may introduce measures to limit car purchases to ease traffic congestion.

“Fundraising by banks will further drain liquidity from the market and lead investors to worry about the health of the banking industry,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Policy tightening will be there for a while.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 19.71 points, or 0.7 percent, to 2,796.98 at the 3 p.m. close. The CSI 300 Index fell 0.9 percent to 3,095.13.

The Shanghai measure has slipped 0.4 percent this year after the central bank raised interest rates five times and the reserve-requirement ratio 12 times since the start of 2010 to stem inflation. Consumer prices rose 6.4 percent in June, the fastest pace in three years, as food costs increased.

Rights Offer

Merchants Bank lost 1.4 percent to 12.80 yuan, the lowest close since June 20. The bank will offer 2.2 shares for every 10 existing shares held by investors, it said in a statement yesterday. The bank said it will set pricing later.

China Construction Bank Corp., the country’s second-largest bank, lost 0.4 percent to 4.88 yuan. Bank of China Ltd., the third largest, fell 0.3 percent to 3.10 yuan.

Chinese banks are raising capital to meet higher adequacy requirements from the China Banking Regulatory Commission. The agency said in April it will raise the minimum ratio for “non- systematically important banks” to 10.5 percent from 8 percent. Lenders’ minimum core capital adequacy requirement was more than doubled to 8.5 percent from 4 percent.

A 32-member measure of consumer discretionary stocks slid 1.7 percent today, the most among the CSI 300’s 10 industry groups. SAIC, China’s largest carmaker, retreated 2 percent to 18.03 yuan, trimming its gain to 23 percent this year.

FAW Car, which makes passenger cars in China with Volkswagen AG, lost 2 percent to 14.31 yuan. Chongqing Changan Automobile Co., the Chinese partner of Ford Motor Co. and Mazda Motor Corp., fell 1.7 percent to 5.18 yuan.

Rebound to Falter

Auto stocks don’t have “momentum” for further gains given the “sizeable” rebound they have made, Wu Wenzhao, an analyst at Sinolink Securities Co., wrote in a report today. The policy uncertainty the auto industry is facing is increasing after the southwest city of Guiyang in Guizhou province introduced purchase restrictions, according to the report.

U.S. stocks declined yesterday amid President Barack Obama’s efforts to get lawmakers to agree to a deficit-cutting deal as the deadline for raising the debt ceiling nears. European shares also fell on concern the region’s banks may have to raise as much as 80 billion euros ($113 billion) of additional capital as stress tests failed to allay investor concern about a Greek default and governments’ ability to bail out their lenders.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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