Bloomberg News

China Stocks Fall on Policy Tightening, Global Economic Concerns

August 22, 2011

Aug. 22 (Bloomberg) -- China’s stocks fell, extending the benchmark index’s losses to a fifth day, on concern the government will further tighten monetary policy even as the global economic slowdown threatens to curb Chinese exports.

Industrial & Commercial Bank of China Ltd. and China Vanke Co., the nation’s biggest lender and property developer respectively, led declines for financial companies after China’s money-market rate climbed to its highest level in three weeks and a Chinese state economist said it’s too early to loosen monetary policies. Jiangxi Copper Co. slid to the lowest in 11 months while Anhui Conch Cement Co. fell another 5 percent today for a 16 percent slump over four days.

“Investors have become sensitive to negative news and numb to good news,” said Tu Jun, a strategist at Shanghai Securities Co. “The market is still bearish amid tight liquidity and concern over the global economic slowdown has added to the bearish sentiment.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 18.5 points, or 0.7 percent to 2,515.86 as of the 3 p.m. close, the lowest since July 19. The gauge dropped 2.3 percent last week, capping a fifth week of losses, the longest since December 2010. The CSI 300 Index slid 1.1 percent to 2,777.79 today.

The Shanghai gauge has declined 10 percent this year as the central bank raised interest rates five times and ordered lenders to set aside more cash as deposit reserves 12 times since the start of 2010 to contain inflation that quickened to the fastest pace in three years last month. The measure is valued at 11.6 times estimated earnings, the lowest since Bloomberg began to track the data in 2006, according to data compiled by Bloomberg.

Rate Outlook

ICBC retreated 1.2 percent to 4.08 yuan, the most since Aug. 8. China Construction Bank Corp. slid 0.9 percent to 4.45 yuan, even after first-half profit rose 31 percent to a record. China Vanke slipped 0.7 percent to 8.08 yuan, while Gemdale Corp. lost 3.6 percent to 6.09 yuan after first-half profit slid 61 percent to 478.3 million yuan.

China’s money-market rate climbed to its highest level in almost three weeks after the central bank raised yields at bill auctions, fueling speculation of further monetary tightening.

The People’s Bank of China lifted yields on its three- month, one-year and three-year bills last week. The one-year yield now exceeds the central bank’s benchmark rate for similar- term deposits, a sign policy rates may be increased, Daiwa Capital Markets Hong Kong Ltd. said in an Aug. 19 report.

Repo Jumps

The seven-day repurchase rate, a gauge of funding availability in the financial system, rose 44 basis points, or 0.44 percentage point, to 4.96 percent as of 10:40 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate earlier touched 4.98 percent, the highest level since Aug. 2.

China should raise deposit rates and lenders’ reserve- requirement ratios, the Financial News said today in a commentary attributed to Yang Ziqiang, who wasn’t identified. The newspaper is controlled by the central bank, which in July 2009 said there was a Yang Ziqiang running its Jinan branch.

Jiangxi Copper, China’s biggest producer of the metal, dropped 2.1 percent to 31.20 yuan, the lowest since Sept. 30. PetroChina Co., the nation’s largest oil producer, sank 0.4 percent to 9.77 yuan.

Copper for delivery in three months on the London Metal Exchange declined 0.3 percent to $8,798 a ton, reversing an earlier gain of as much as 0.7 percent. Brent oil for October settlement dropped as much as $3.25 to $105.37 a barrel on the London-based ICE Futures Europe exchange.

‘Double Dip’

Concern the global economy is stalling sent U.S. stocks tumbling last week, as the Standard & Poor’s 500 Index posted its biggest four-week loss since March 2009. Morgan Stanley economists cut forecasts for world growth this year and said the U.S. and Europe are “dangerously close to recession.” Germany’s economy, Europe’s largest, almost stalled in the second quarter with gross domestic product climbing 0.1 percent.

“If the world economy deteriorates and falls into a double-dip, then China may need to loosen its policy,” said Zhu Baoliang, deputy director at the economic forecasting department of the State Information Center. “But the situation may not turn out to be that serious.”

HSBC Holdings Plc and Markit Economics are scheduled to release preliminary data for this month’s purchasing managers’ index at 10:30 a.m. on Aug. 23. China’s PMI fell to 49.3 last month, below the 50-level expansion threshold.

Anhui Conch Cement, China’s biggest producer of building material, lost 5 percent to 21.75 yuan, the lowest since Feb. 24. Huaxin Cement Co. slid 3.8 percent to 23.85 yuan even after the company’s first-half net income rose 603 percent to 542.1 million yuan from a year earlier.

Earnings Growth

Some 493 companies have reported first-half earnings in the Shanghai Composite, beating analysts’ estimates by an average of 4.5 percent, compared with 4.1 percent in the same period last year, according to data compiled by Bloomberg.

About 79 percent of 510 Chinese companies that have estimated earnings for the first nine months said they may report profits for the period, China Securities Journal said today, citing data from Wind Information. Among them, 57 companies predicted net income may rise more than 100 percent, the report said.

Emerging-market stocks may benefit if Federal Reserve Chairman Ben S. Bernanke announces measures at an Aug. 26 conference in Jackson Hole, Wyoming, including U.S. bond purchases of more than $600 billion, direct asset buying by the central bank as well as a jobs stimulus program, Societe Generale SA said.

Todd Martin, Asia equity strategist at the French bank, said that investors should buy “cheap” growth stocks in China and South Korea along with “defensive, high-yielding” equities, according to an interview on Bloomberg Television today.

The most-read Chinese stock stories: MNI CHS <GO> Global stocks stories: TOP STK <GO> World equity index monitor: WEI <GO> World equity valuations: WPE <GO>

--Irene Shen. Editors: Allen Wan, Matthew Oakley

To contact Bloomberg News staff for this story: Irene Shen in Shanghai at Ishen4@bloomberg.net

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


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