Bloomberg News

China’s Stocks Drop on Economic Slowdown; Automakers Decline

October 19, 2011

Oct. 19 (Bloomberg) -- China’s stocks fell for a second day after foreign direct investment grew at the slowest pace in three months, boosting speculation Europe’s debt crisis and tighter monetary policies are stalling global economic growth.

FAW Car Co. led declines by automakers after the Economic Observer said an industry group cut its 2011 domestic vehicle sales growth forecast. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. retreated to the lowest in eight months after announcing a production halt amid weakening metals demand. Poly Real Estate Group Co., the second-biggest developer, slid 2.5 percent on concern the nation’s home prices will decline further as the government maintains real-estate curbs.

“The bearish sentiment won’t change and all news will be interpreted in a negative way,” said Tu Jun, a strategist at Shanghai Securities Co. “There’s still room for the central bank to keep its monetary policy tight.”

The Shanghai Composite Index lost 6 points, or 0.3 percent, to 2,377.51 at the close, extending yesterday’s 2.3 percent slump. The CSI 300 Index slid 0.4 percent to 2,583.08. The Shanghai index has lost 15 percent this year, driving down estimated price earnings to 11 times, compared with the record low of 10.8 times set on Oct. 10, according to data compiled by Bloomberg. China has raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of their deposits to curb inflation that’s near a three-year high.

A gauge of consumer discetionary stocks in the CSI 300 dropped 1.4 percent, the most among the 10 industry groups.

FAW lost 4.4 percent to 10.56 yuan in Shenzhen, the lowest close since March 13, 2009. Anhui Jianghuai Automobile Co. fell 1.7 percent to 7.62 yuan. CAAM cut its forecast for vehicle sales growth to as much as 3 percent this year, from 5 percent, the newspaper said. It was the second time that the association cut the forecast, it said.

Prudent Policies

Central bank adviser Xia Bin said that the nation’s growth is “sound” and he doesn’t believe that the government needs to implement any “major” stimulus measures.

He spoke in an interview in Beijing today after the government announced yesterday that growth slowed to 9.1 percent in the third quarter, the slowest pace in two years. The central bank should stick to its “prudent” monetary policy, he said.

Foreign direct investment in China grew in September at the slowest pace in three months, as companies pared spending amid concerns that the global recovery is faltering.

Foreign investment gained 7.9 percent to $9 billion, the Ministry of Commerce said in a statement distributed before a briefing in Beijing today. That compares with expansion of 11.1 percent in August and 19.8 percent in July.

No ‘Sudden Change’

A leading economic index for China rose 0.5 percent to 159.5 in August, the Conference Board, a New York-based research organization, said on its website today.

“The latest data won’t trigger any sudden change in monetary or fiscal policy, but looking ahead the overall direction is likely to be easing,” said Yao Wei, an economist at Societe Generale SA and the only one of 22 analysts in a Bloomberg News survey to predict the GDP number. “Consumption has held up quite well,” said Yao.

Chinese stocks will continue to be volatile in the next 12 months with investors selling into rallies, according to BNP Paribas SA.

BNP Paribas recommends Chinese resource producers and “brand” consumer companies, Dorris Chen, head of China research at BNP, said in a report to clients. “With September new credit of 470 billion yuan lower than expected, and macro growth deceleration evident in third-quarter numbers, the coming month is likely to see profit-taking in China after strong rallies recently,” she said.

Property Prices

Poly Real Estate lost 2.5 percent to 8.71 yuan. Gemdale Corp slid 2.2 percent to 4.55 yuan. Home prices may fall up to 20 percent and that it may take several more months before China starts relaxing tightening policies, according to a report from Societe Generale’s Yao.

Inner Mongolia Baotou fell 4.7 percent to 45.27 yuan, the lowest since Feb. 14. The rare-earth producer cited falling prices and weak demand for the production halt that will take effect today, the company said in a statement to Shanghai’s stock exchange.

Sinohydro Group Ltd., China’s biggest hydroelectric dam builder, slumped 7.8 percent to 4.86 yuan. The stock surged 17 percent yesterday in its trading debut.

--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: Darren Boey at dboey@bloomberg.net


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