Bloomberg News

China’s Stocks Drop to One-Week Low as Data Fuel Policy Concern

September 13, 2011

Sept. 13 (Bloomberg) -- China’s stocks fell, dragging the benchmark index to a one-week low, on concern the government may intensify policy tightening after imports jumped to a record and new lending increased.

Industrial & Commercial Bank of China Ltd. and China Construction Bank Corp. declined after the Beijing News reported the central bank sold additional bills to major lenders, a step to drain liquidity from the banking system. Among commodity companies, Jiangxi Copper Co. and Aluminum Corp. of China Ltd. retreated at least 1.7 percent. BYD Co., the automaker part- owned by Warren Buffett’s Berkshire Hathaway Inc., tumbled to a record low on a bond-sale plan.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 26.45 points, or 1.1 percent, to 2,471.31 at the 3 p.m. close. The gauge, which sank 1.2 percent last week, settled at its lowest level since Sept. 6. The CSI 300 Index sank 1.1 percent to 2,720.28.

“Although there’s a small risk of a hard landing for China’s economy, a possible rebound in inflation and the impact of worsening European debt crisis on the global economy still remain the biggest concern to investors,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s also no sign that policies will be loosened in the short term. Stocks might test a new low.”

China’s markets resumed trading after a holiday yesterday during which the MSCI Asia Pacific Index lost 2.3 percent on speculation Greece may be nearing a default on its sovereign debt. Italian officials have held talks with their Chinese counterparts about potential investments in the euro region’s third-largest economy, an Italian government official said.

Italian Investment

The Shanghai gauge has slumped 12 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. The stock gauge is valued at 11.4 times estimated profit, the lowest on record according to daily data compiled by Bloomberg dating back to January 2006.

A spokesman for Italian Finance Minister Giulio Tremonti declined to comment on possible talks on Chinese investments in Italy. News of the Chinese interest comes on the eve of a 7 billion-euro ($9.6 billion) bond sale.

Officials in German Chancellor Angela Merkel’s government are debating how to shore up the country’s banks should Greece fail to meet the budget-cutting terms of its aid package, three coalition officials said on Sept. 9. BNP Paribas SA, Societe Generale SA and Credit Agricole SA may have their ratings cut by Moody’s this week because of their holdings of Greek debt, two people with knowledge of the matter said.

Additional Bills

ICBC, the nation’s biggest listed lender, dropped 1 percent to 4.14 yuan. Construction Bank, the second-largest, lost 0.9 percent to 4.53 yuan. Agricultural Bank of China Ltd., the fourth-biggest, retreated 0.4 percent to 2.57 yuan.

The central bank sold more than 20 billion yuan ($3.13 billion) of additional bills to ICBC, Construction Bank, AgriBank and some other lenders after they were judged to have lent excessively, the Beijing News reports, citing an unidentified person.

Liquidity will remain tight as capital inflows slow in the near term, the China Securities Journal wrote in a front-page editorial. There is currently no sign that monetary policy will change as stabilizing prices remains the priority, the editorial said.

Inbound shipments jumped 30.2 percent from a year earlier to a record $155.6 billion in August, the customs bureau reported over the weekend. Exports climbed 24.5 percent, more than economists estimated. New lending rose to 548.5 billion yuan last month, the central bank said on Sept. 11.

Inflation Easing

A measure of 48 material stocks slid 1.9 percent today, the biggest loss among the CSI 300’s 10 industry groups, on concern tighter monetary policy will curb commodities demand.

Jiangxi Copper, China’s biggest producer of the metal, slid 1.9 percent to 30.75 yuan. Aluminum Corp., the listed unit of nation’s biggest maker of the lightweight metal, dropped 1.7 percent to 8.72 yuan.

Signs have emerged that government policies may have helped moderate inflation and growth. A statistics bureau report last week showed inflation eased from a three-year high to 6.2 percent in August while industrial production expanded 13.5 percent, the smallest gain in three months.

BYD tumbled 6.3 percent to 21.13 yuan, its lowest close since its debut on June 30. Shareholders approved a plan to sell as much as 6 billion yuan of bonds in China, the company said in an exchange statement.

Cement Stocks

Anhui Conch Cement Co. rebounded among cement stocks after Citic Securities Co. said nationwide prices of the building material rose 0.2 percent last week from the previous week.

Anhui Conch, China’s biggest cement maker, rose 1.3 percent to 18.28 yuan, trimming its loss to 18 percent this month. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., advanced 3.5 percent to 18.78 yuan.

Cement prices rose by as much as 40 yuan last week in the provinces of Guangdong, Guangxi and Guizhou as power restrictions strained supplies and inventories fell, analysts led by Zeng Hao at Citic Securities wrote in a report today.

--Zhang Shidong. Editor: Matthew Oakley

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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