Bloomberg News

China’s Stocks Decline, Paring Biggest Monthly Gain in Year

November 01, 2011

Oct. 31 (Bloomberg) -- China’s stocks fell for the first time in six days, narrowing the benchmark index’s biggest monthly gain in a year, after Premier Wen Jiabao said the government should “firmly” maintain property curbs.

Anhui Conch Cement Co., China’s biggest producer of the building material, lost 1.6 percent after the government said local authorities should strictly implement tight policies in the property industry in the coming months. Huaxia Bank Co. and Bank of Communications Co. led a gauge of financial companies to its first drop in more than a week. Baoshan Iron & Steel Co., the biggest publicly traded steelmaker, slid the most in two weeks and China Railway Group Ltd. dropped 1.9 percent after earnings for both companies slumped in the third quarter.

“It’s too early to celebrate after the rally as the government is still keeping its control policies,” said Tu Jun, a strategist at Shanghai Securities Co. “The market may be range-bound at current levels and the uncertainty over policy easing will lead to volatility.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 5.2 points, or 0.2 percent, to 2,468.25 at the close. The gauge advanced 6.7 percent last week, the biggest gain since the period ended Oct. 15, 2010. The CSI 300 Index slid 0.5 percent to 2,695.31 today.

A gauge tracking financial companies in the CSI 300 Index dropped 0.7 percent today, paring this month’s 8.4 percent jump, the most among 10 industry groups. Huaxia Bank, partly owned by Deutsche Bank AG, retreated 3.1 percent to 11.10 yuan, paring gains for this month to 9.8 percent. Bank of Communications, the fifth-largest lender, lost 1.3 percent to 4.71 yuan.

China will “firmly” maintain its property curbs and “fine tune” other economic policies at an appropriate time, according to a statement following a State Council meeting chaired by Premier Wen.

Property Tightening

Local authorities should continue to strictly implement the central government’s real-estate policies in the coming months to let people see the results of the curbs, according to the statement on Oct. 29. The government will “fine tune” its economic policies by “an appropriate degree and at an appropriate time,” it said.

The government this year increased down-payment requirements and mortgage rates on some homes and imposed housing purchase restrictions in about 40 cities. The central bank has also 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.

“It demonstrates to local governments and developers the central government’s determination to tighten the property market,” said Liu Li-Gang, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “With inflation still at a high level, it’s unlikely the government will take a big step to loosen its policy, but only a partial easing.”

Selective Easing

Anhui Conch sank 1.6 percent to 20.16 yuan. Jiangxi Copper Co., the biggest copper producer, slid 1.4 percent to 28.03 yuan. PetroChina Co., the largest oil company, dropped 1 percent to 9.88 yuan.

The Shanghai measure has gained 4.6 percent this month, the best monthly rally since October 2010, with gains accelerating after Wen said on Oct. 25 the government will fine-tune economic policies at an “appropriate time.” The government has announced measures to help cash-strapped small companies through tax breaks and easier access to loans.

China may loosen its lending standards as the “next logical step” after announcing selective policy easing measures to boost the economy, according to China International Capital Corp.

Earnings Slump

“Earnings growth is slowing substantially across the board for the A-share market as it continues through quarterly earnings season,” Hao Hong, CICC’s Beijing-based global equity strategist, wrote in a report. “Just as fundamentals are slowing down, in part due to the government’s tightening campaign earlier, more signs of designated easing are emerging.”

Baoshan Iron & Steel slid 1.7 percent to 5.27 yuan after China’s biggest publicly traded steelmaker said third-quarter profit fell 51 percent to 1.24 billion yuan as increases in raw- material costs outpaced product-price gains. China Railway Group slipped 1.9 percent to 3.12 yuan after the nation’s biggest builder of train lines said third-quarter profit fell 49 percent after a 15-fold jump in borrowing costs.

The Shanghai Composite may rebound to between 2,600 and 2,700 on the prospect of improving economic data and as concern over the European debt crisis eases, according to Citic Securities Co.

Manufacturing Data

The October purchasing manager’s index may be “better” than September as Premier Wen Jiabao said the government will fine-tune policies, sales of railway bonds resume and the outlook for the European debt crisis improves, Xi Feng, an analyst at the brokerage, wrote in a report today. Citic Securities recommends shares related to environmental protection and water conservancy.

The purchasing managers’ index, which measures China’s manufacturing sector, probably rose to 51.8 in October, the highest level since May, according to the median forecast of 13 economists surveyed by Bloomberg. HSBC Holdings Plc and Markit Economics are scheduled to release the report tomorrow.

The Bloomberg China-US 55 Index is up 9.8 percent this month after climbing to a two-month high on Oct. 27. The measure of the most-traded Chinese companies in the U.S. retreated 2.2 percent on Oct. 28 as global stocks slipped on concern the gains driven by a European agreement on solving the debt crisis went too far.

--Irene Shen in Shanghai, Ye Xie and Belinda Cao in New York. Editors: Allen Wan, Matthew Oakley

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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