Bloomberg News

China Stocks Fall to Lowest Since July 2010 on Inflation Concern

September 26, 2011

Sept. 26 (Bloomberg) -- China’s stocks fell, dragging the benchmark index to the lowest level in more than 14 months, as comments from the central bank governor that inflation remained the nation’s “top concern” fanned speculation policies to curb rising prices will slow economic growth.

Poly Real Estate Group Co. declined 4.3 percent after China Business News said the city of Chongqing will start imposing a property tax on existing villas. Ping An Insurance (Group) Co. tumbled the most since November 2008 on speculation shareholder HSBC Holdings Plc had sold stock in the company. Liquor maker Kweichow Moutai Co. dropped 3.1 percent on concern a halt on price increases will hurt earnings.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 39.98 points, or 1.6 percent, to 2,393.18 at the 3 p.m. close, the lowest level since July 5, 2010. It lost 2 percent last week, its fourth weekly decline. The CSI 300 Index fell 2.2 percent to 2,610.92.

“Policymakers are unlikely to relax tightening policies in the short term so the market is still in the process of seeking its bottom,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “The market is facing lots of uncertainty and the biggest risk comes from overseas, such as the sovereign-debt problems and slowing growth in advanced economies.”

Inflation Policies

The MSCI All-Country World Index of 45 nations entered a bear market last week for the first time in more than two years as the European debt crisis and threat of a U.S. recession raised concerns over global economic growth. The index sank 7.6 percent last week and has dropped 23 percent from its peak this year on May 2.

The Shanghai Composite has tumbled 15 percent this year as the government raised interest rates and reserve-requirement ratios for banks to cool inflation that’s at the highest level in almost three years. The measure is valued at 11.1 times estimated profit, the lowest level on record, according to weekly data compiled by Bloomberg.

The People’s Bank of China has no “immediate” ways to control inflation because it takes time for monetary policy to affect prices, Governor Zhou Xiaochuan told reporters at the International Monetary Fund in Washington over the weekend. It’s “too early” to determine how emerging economies can further help the euro area overcome its sovereign debt crisis because reforms are still under way, he said.

Developers Slump

September consumer prices may rise less than the 6.2 percent increase posted last month, China Securities Journal reported, citing an unidentified analyst. Tight monetary policy has taken effect and the central bank is less likely to continue raising interest rates or required reserve ratios, it said.

A measure tracking 52 financial companies including property stocks dropped 3.3 percent today, the most among the CSI 300’s 10 industry groups. China Vanke Co., the nation’s biggest listed property developer, retreated 3.4 percent to 7.15 yuan, the lowest since July 8, 2010. Poly Real Estate, the second largest, slid 4.3 percent to 9.10 yuan, the lowest level since June 2. Gemdale Corp. lost 3 percent to 5.10 yuan.

The southwestern city of Chongqing will start imposing a property tax on owners of existing villas from Oct. 1, becoming the first Chinese city to tax existing homes, China Business News reported today, citing an unidentified local tax bureau official.

Villa Taxation

Some Chinese developers, likely small and medium-sized companies with over-extended balance sheets, face bankruptcy in coming months as the government tightens control on loans obtained from trust companies and as sales slow, UBS AG said in a Sept. 23 report.

Ping An, China’s second-biggest insurer, slumped 9.6 percent to 34.37 yuan. Its Hong Kong-listed shares tumbled 13 percent as of 3:47 p.m., set for its biggest loss since October 2008.

“There’s speculation that HSBC is selling Ping An’s shares on the Hong Kong stock market,” said Cao Hengqian, an analyst covering the insurance industry at GF Securities Co. in the southern city of Guangzhou. “It looks like Ping An’s Shanghai- listed shares are simply following the slump on its underlying H-shares.”

HSBC held 15.57 percent of Ping An as of June 30, according to the Shenzhen-based insurer’s first-half report. HSBC’s policy is not to comment on market speculation, Jessica Lennon, a Hong Kong-based spokeswoman at HSBC, said in an e-mailed reply to enquiries from Bloomberg News.

“We’ve noticed the abnormal movement in the company’s shares today,” Sheng Ruisheng, Ping An’s spokesman, said by phone. “All business is normal at all units of the group, and there’s nothing that we should disclose but haven’t disclosed.”

No Price Increase

Kweichow Moutai, China’s biggest producer of baijiu liquor by market value, retreated 3.1 percent to 188.12 yuan, the lowest level since June 24. Wuliangye Yibin Co., China’s second- biggest maker of white liquor by market value, fell 1.9 percent to 35.75 yuan. Luzhou Laojiao Co., a spirits producer in the southwestern province of Sichuan, lost 2.8 percent to 38.88 yuan.

The National Development and Reform Commission has told domestic liquor makers to halt price increases for their products, according to a Sept. 19 statement on the China Alcoholic Drinks Industry Association’s website.

Investors should sell Chinese stocks on rebounds because valuations are not “compelling” in terms of book values, China International Capital Corp. said.

Price-to-book ratios are still 35 percent higher than the lows reached during the 2008 global financial crisis, Hao Hong, a global equity strategist at CICC, wrote in a report today. Investors should wait until economic fundamentals start to get better, the report said.

China Coal Energy Co., the nation’s second-largest coal producer, advanced 1.1 percent to 8.86 yuan. Parent China National Coal Group bought 5.52 million shares on Sept. 22 and 5.77 million shares on Sept. 23, increasing its stake to 56.51 percent from 56.43 percent, China Coal said in a statement. The parent will continue to increase its holdings in the next 12 months, the statement said.

--Zhang Shidong. Editors: Matthew Oakley, Darren Boey

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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