Bloomberg News

China Stocks Drop to Lowest Level in 2 Years as Developers Fall

October 10, 2011

Oct. 10 (Bloomberg) -- China’s stocks fell, driving the benchmark index to the lowest level since March 2009, as housing sales slumped during a week-long holiday and energy producers declined after the government cut fuel prices.

China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest developers, plunged more than 3 percent after industry sales dropped last week and Shanghai Securities News reported high inflation signals tight monetary policies will remain in place. PetroChina Co., the country’s largest oil producer, retreated the most in two weeks as the first reduction in fuel prices this year spurred concerns about earnings.

“Tight liquidity has hurt some small companies with anything related to monetary policy dragging banks and the market lower,” said Tu Jun, a strategist at Shanghai Securities Co. “Market sentiment is very weak at the moment and investors are more sensitive to bad news than good.”

The Shanghai Composite Index slipped 0.6 percent to 2,344.79 at the 3 p.m. close, the lowest since March 25, 2009. The CSI 300 Index lost 0.9 percent to 2,557.08.

The Shanghai Composite sank 15 percent last quarter, the biggest loss since the three months to June 2010. The index has tumbled 17 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 stock measure is valued at 10.8 times estimated profit, the lowest level on record, according to weekly data compiled by Bloomberg.

Prudent Policy

China’s central bank has reiterated stabilizing overall price levels remains a top priority of macro-economic policy, Shanghai Securities News reported today, citing information from a People’s Bank of China’s meeting of its monetary policy committee.

Central bank adviser Zhou Qiren said the country should keep a prudent monetary policy because small companies will have a better development environment only if inflation is thoroughly curbed, the Beijing Morning Post reported today.

China Vanke slid 3.3 percent to 7 yuan. Poly Real Estate Group Co. fell 3.5 percent to 8.93 yuan.

China’s home transactions fell during the week-long public holiday after residential prices posted their first monthly decline in a year, according to Soufun Holdings Ltd.

Transactions in 20 major cities slipped by an average 32 percent last week from a year earlier, Soufun said in a report on Oct. 8.

China’s home prices will gradually ease because of rising inventories and a slump in property market transactions, the official Xinhua News Agency reported yesterday.

Wenzhou Concern

The decline in sales volume last week, traditionally a peak period for developers, may mark a turning point for a property market that had defied the government’s efforts to contain surging home values, according to Credit Suisse Group AG.

Developers may wrongly think Premier Wen Jiabao’s recent trip to Wenzhou city is sign of loosening for sector, Credit Suisse analysts led by Jinsong Du wrote in note, citing discussions with government officials.

The closures of small- and medium-sized enterprises in Wenzhou is a regional issue and will not threaten the stability of China’s banking system, Sing Tao Daily reported Oct. 8, citing He Guangbei, chief executive officer of BOC Hong Kong (Holdings) Ltd. The liquidity problem facing smaller companies in Wenzhou is not widespread in China, the paper said. Wenzhou is in Zhejiang province near Shanghai.

Shenzhen Development Bank Co. declined 3.4 percent to 15.50 yuan. China Minsheng Banking Corp. slipped 2.2 percent to 5.40 yuan.

Ex-factory gasoline and diesel prices were both reduced by 300 yuan ($47.20) a metric ton, effective yesterday, the National Development and Reform Commission, the nation’s top economic planner, said. That represents a 3.5 percent drop for gasoline and 3.9 percent for diesel.

PetroChina slid 1.1 percent to 9.76 yuan. China Petroleum & Chemical Corp. retreated 0.4 percent to 6.90 yuan.

--Irene Shen. Editors: Allen Wan, Nick Gentle

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Shiyin Chen at schen37@bloomberg.net


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