Bloomberg News

China Stocks Sink to 14-Month Low as Property, Rail Shares Fall

September 28, 2011

Sept. 28 (Bloomberg) -- China’s stocks fell, sending the benchmark index to its lowest level since July 2010, on concern government measures to tame inflation and a faltering global economy will hurt earnings growth.

China Vanke Co. and Poly Real Estate Group Co. led losses by developers amid speculation funding costs will rise at the same time as sales slow. Railcar makers CSR Corp. and China CNR Corp. sank after a train collision in Shanghai’s metro injured 271 people. Stocks also fell on concern initial public offerings will sap demand for existing equities.

The Shanghai Composite Index dropped 22.99 points, or 1 percent, to 2,392.06 at the 3 p.m. close, erasing an earlier 0.6 percent gain. The CSI 300 Index declined 1 percent to 2,610.59. The country’s markets will be shut all next week for holidays.

“The main focus for investors is how much China’s economy will slow and how soon tight policies will be relaxed,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.

The Shanghai Composite has tumbled 15 percent this year, extending last year’s 14 percent drop, 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 gauge has sunk 13 percent this quarter, set for the biggest loss since the three months to June last year.

The measure is valued at 11 times estimated profit, the lowest level on record, according to weekly data compiled by Bloomberg.

Global Reports

Commerce Department data today may show U.S. durable goods orders fell, after a report confirmed France’s economy stalled last quarter and South Korea’s central bank said sentiment among manufacturers held at a 21-month low.

An index tracking property stocks on the Shanghai Composite fell 1.2 percent to its lowest level since February 2009. Vanke, the nation’s biggest listed property developer, dropped 1.3 percent to 7.08 yuan. Poly Real Estate, the second largest, slid 1.8 percent to 9 yuan. Gemdale Corp. retreated 2.6 percent to 4.92 yuan.

China’s clampdown on property loans and concern that local authorities will struggle to pay their debts are driving up corporate borrowing costs by the most in four years relative to government bonds.

The difference between yields on 10-year notes issued by top-rated companies and government securities widened 46 basis points this quarter to 221 basis points. A gap of 224 on Sept. 26 was the biggest since at least March 2006, according to data from Chinabond, the nation’s biggest debt clearing house.

Rail Crash

CSR, which has made subway trains for lines in Shanghai, Nanjing and Guangzhou, fell 1.7 percent to 4.64 yuan. China CNR Corp., the nation’s second-biggest train maker, slid 1.7 percent to 4.70 yuan. China Railway Group Ltd., the nation’s biggest construction company by total assets, lost 1 percent to 2.99 yuan.

Shanghai’s subway crash happened while controllers were running operations using a manual system following an equipment failure, Shanghai Shentong Metro Co. said in a statement. The accident on line 10, which opened last year, occurred between Yuyuan station and Lao Ximen yesterday.

China slashed nationwide spending on railway construction by 50 percent last month as it slowed work after a high-speed train crash killed 40 people in July.

Share Sales

China’s benchmark money-market rate rose to a three-week high as Sinohydro Group Ltd.’s initial share sale tied up funds.

Demand for cash also rose before the National Day holiday, which will shut financial markets for the whole of next week, and as banks prepare to meet quarter-end capital requirements. The People’s Bank of China injected funds into the financial system for a 10th week in the period through Sept. 22.

Sinohydro plans to raise as much as 14.4 billion yuan ($2.3 billion) in a Shanghai initial public offering, China Securities Journal reported on Sept. 26. The securities regulator approved the listing of Zhejiang Aokang Shoes Co. on Sept. 23.

China Communications Construction Co., the nation’s biggest port builder, received approval from China Securities Regulatory Commission for its initial public offering in Shanghai, 21st Century Business Herald reported. The Beijing-based company may raise as much as 20 billion yuan from the stock sales, it said in a Sept. 24 statement.

Citic Securities Co. fell 2.5 percent to 11.52 yuan. China’s biggest publicly traded brokerage may raise about HK$13 billion ($1.7 billion) selling shares below the midpoint of a marketed price range in a Hong Kong stock sale, two people with knowledge of the matter said.

Underwriters for Shanghai-listed Citic Securities advised the company to sell shares at HK$13.30 apiece, said the people, who declined to be identified because no final decision on pricing has been made. The shares have been marketed to investors at HK$12.84 to HK$15.20.

UBS AG is “cautious” about China’s stocks in the fourth quarter as economic and earnings growth slow, and the risk of a double-dip recession in the global economy rises, said Gao Ting, chief China strategist at UBS. China is also unlikely to relax monetary policies, the strategist said at a briefing in Shanghai yesterday.

--Zhang Shidong. Editors: Richard Frost, 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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