Bloomberg News

China’s Stocks Fall, Capping Weekly Drop on Credit, Inflation

September 02, 2011

Sept. 2 (Bloomberg) -- China’s stocks fell, capping the benchmark index’s biggest weekly loss in three months, on speculation the government won’t ease policy measures to cool inflation even as economic and earnings growth slows.

Huaxia Bank Co. and Industrial Bank Co. led declines for lenders after Caijing reported the odds the central bank will lower the reserve requirement ratio for small and medium-sized banks are small. Jiangxi Copper Co. slid 1.8 percent before a report that may show the U.S. added fewer jobs in August. Air China Ltd. dropped to the lowest since December 2009 after the International Air Transport Association said global airlines face a “weaker end to the year.”

“The economic growth momentum is weak globally and investors are hesitant to increase their risk appetites,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “For China, the problem is still inflation and there won’t be any easing before prices taper off.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 27.76 points, or 1.1 percent, to 2,528.28 at the 3 p.m. close. It lost 3.2 percent this week, the most since the period ended May 27, after the central bank ordered lenders to set aside more reserves against margin deposits. The CSI 300 Index fell 1.1 percent to 2,803.85 today.

The Shanghai gauge has slumped 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. It is valued at 11.6 times estimated earnings, matching a record low set on Aug. 22, according to daily data compiled by Bloomberg.

Financials Drop

Huaxia Bank, partly owned by Deutsche Bank AG, slid 2.1 percent to 10.36 yuan. Industrial Bank, part-owned by a unit of HSBC Holdings Plc, fell 1.6 percent to 13.18 yuan. Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., lost 0.9 percent to 9.29 yuan.

The chance is “quite small” for China’s central bank to lower the reserve requirement ratio for small and medium-sized banks, Caijing reported, citing Industrial Bank’s economist Lu Zhengwei.

China’s financial and industrial stock gauges in the CSI 300 slumped more than 3 percent this week after the central bank issued an order on Aug. 26 to lenders they will have to include margin deposits in calculations of their reserve requirements starting Sept. 5. The move is intended to deal with the rapid growth in banks’ off-balance sheet lending that’s complicating the central bank’s attempts to control liquidity, according to Wang Tao, a Hong Kong-based economist for UBS AG.

Industrials Slide

The industrials gauge slid 4.2 percent this week, the most among the 10 industry groups, while the financials measure including banks and developers dropped 3.3 percent. Huaxia Bank and Bank of Ningbo Co. declined more than 7 percent. Taiyuan Heavy Industry Co. retreated 6.7 percent. The central bank action boosted speculation that banks will be more reluctant to lend to small- and medium-sized manufacturers at a time when export orders are slumping.

A gauge of export orders in the China Federation of Logistics and Purchasing’s manufacturing index contracted for the first time in more than two years, dropping to the lowest since March 2009. The report was released yesterday. China’s gross domestic product may expand 8.6 percent this year, less than an earlier forecast of 8.7 percent, Credit Suisse Group AG said yesterday, cutting its stock-index targets for 2011.

Developers fell after the Oriental Morning Post reported Shanghai’s home transaction volumes fell to a six-year low. Poly Real Estate Group Co., the second-largest developer by market value, fell 3.4 percent to 10.66 yuan. China Vanke Co., the biggest, slipped 0.5 percent to 8.10 yuan.

Stocks Outlook

China’s stocks will decline further this year as the central bank is unlikely to ease its policy tightening measures because of inflation, according to Dorris Chen, head of China research at BNP Paribas SA. The Shanghai Composite will fall to the 2,000 level in a worst-case scenario, Chen said in a Bloomberg Television interview in Shanghai. Consumer prices rose 6.5 percent in July, the fastest pace in three years. The August inflation figure is due Sept. 9.

China’s top priority is stabilizing prices and the government doesn’t plan to alter the direction of economic policies, Premier Wen Jiabao wrote in an article in the ruling Communist Party’s Qiushi magazine this week.

Jiangxi Copper, China’s biggest producer of the metal, lost 1.8 percent to 32.41 yuan. Tongling Nonferrous Metals Group Co., the second largest, fell 2.3 percent to 23.06 yuan. Western Mining Co., China’s fourth-largest maker of zinc concentrate, dropped 1.9 percent to 13.24 yuan.

Airlines Drop

The Standard & Poor’s 500 Index dropped 1.2 percent yesterday, snapping a four-day advance, before a Labor Department report that may show non-farm payrolls climbed by 68,000 in August after a 117,000 increase in July, according to the median forecast of economists surveyed by Bloomberg News.

Air China, the nation’s largest international carrier, slid 3.3 percent to 8.72 yuan. China Southern Airlines Co., the biggest carrier by fleet size, dropped 3.7 percent to 7.37 yuan.

A 0.4 percent decline in freight traffic in July from a year earlier indicates the likely trend, the International Air Transport Association said in a statement yesterday.

--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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