Bloomberg News

China Stock Futures Fall on U.S. Senate Bill, Property Curbs

October 11, 2011

Oct. 12 (Bloomberg) -- China’s stock-index futures fell after the U.S. Senate passed legislation aimed at pushing the government to boost the value of the yuan and a southern Chinese city backtracked on plans to ease property curbs.

Futures on the CSI 300 Index expiring in October lost 0.3 percent to 2,541.80 as of 9:16 a.m. local time. China Shenhua Energy Co. may drop after the China Securities Journal said more provinces will impose higher fees on coal producers. Changsha Zoomlion Heavy Industry Science and Technology Development Co. may advance after saying nine-month profit may rise 92 percent.

The Shanghai Composite Index added 0.2 percent to 2,348.52 yesterday, as banks advanced after a state-run investment arm began buying shares of the nation’s four biggest lenders. The CSI 300 Index lost 0.2 percent to 2,551.99.

“The increased pressure on the yuan will hurt Chinese exporters like textile and electronic appliance companies,” said Zhang Han, a strategist at Guotai Junan Securities Co. “The government’s gesture to support the market hasn’t proved sufficient to boost shares, hurting sentiment.”

The Shanghai Composite has tumbled 16 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 10.84 times estimated profit, compared with the record low of 10.82 times set on Oct. 10, according to data compiled by Bloomberg.

The CSI 300 Financials Index rose 1.3 percent yesterday after state-run Central Huijin Investment Ltd. said it started buying shares in the four biggest lenders including Bank of China Ltd. The gauge’s estimated price-earnings ratio fell to a record low of 8.02 on Oct. 10 amid concern slowing economic growth will spur bad debts after a three-year credit boom.

Bearish on Banks

Jim Chanos, the hedge-fund manager who’s been betting that Chinese bank stocks will tumble, said a rally spurred by government purchases of the shares hasn’t changed his bearish outlook.

“The fact that people are even talking about the government stepping in to shore up the banks, when two months ago people thought there was nothing wrong with the Chinese banks, should tell you just how seriously this situation is deteriorating,” Chanos, founder of New York-based hedge fund Kynikos Associates, said in an interview with Bloomberg Television’s Michael McKee yesterday.

The U.S. Senate passed legislation letting companies seek duties to compensate for a weak Chinese yuan, putting pressure on House Speaker John Boehner to take up a bill he has called “dangerous.” China’s leaders and Washington opponents such as Boehner and the U.S. Chamber of Commerce have said the measure risks starting a trade war.

The Senate voted 63-35 on the evening of Oct. 11 U.S. time to approve the measure backed by Democrats such as Senators Sherrod Brown of Ohio and Charles Schumer of New York and Republicans including Lindsey Graham of South Carolina and Jeff Sessions of Alabama.

Yuan Outlook

The yuan has appreciated 4.6 percent against the U.S. dollar in the past year and 24 percent in the past five years, the steepest advance among 25 emerging-market currencies tracked by Bloomberg. China limits currency conversions for investment purposes and buys dollars to slow the yuan’s advance and preserve the competitiveness of China’s exports.

Foshan city in southern Guangdong province suspended its decision to ease limits on property purchases less than a day after the local government said it would allow residents to buy a second home.

Local authorities need to further assess the impact of relaxing property limits, Foshan’s Bureau of Housing and Urban- Rural Development said late yesterday. The city government had earlier yesterday said it would from today begin allowing local residents to buy a second residential property priced at less than 7,500 yuan ($1,177) per square meter.

Coal Taxes

Foshan would have been the first city in China to ease measures ordered by the central government aimed at reining in the nation’s property prices. Limits on mortgages and property purchases introduced by the central government on concerns surging prices could fuel an asset bubble and lead to social unrest as homes became less affordable are also restricting an important source of revenue for local authorities.

More coal producing provinces may follow Guizhou in the southwest and increase charges for local coal producers, China Securities Journal reported today, citing unidentified analysts.

Guizhou raised the charge to 10 percent of the coal sales price starting Oct. 1, with the fee put into a local coal price adjustment that will be used to subsidize coal-fired power plants, the newspaper said.

Coal producers plunged yesterday on concern about earnings prospects after the government said it levy a tax of 8 yuan to 20 yuan on every metric ton of coking coal sold starting next month. The tax on coking coal is 8 yuan a ton currently, according to Anna Yu, a Hong Kong based energy analyst with ICBC International Research Ltd.

Changsha Zoomlion estimated its net income in the first nine months may have risen 92 percent to 6 billion yuan, according to a filing to the Shenzhen Stock Exchange after the market close yesterday.

--Irene Shen. Editors: Allen Wan, Richard Frost

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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