Bloomberg News

China’s Stocks Drop Most in Two Weeks as SAIC, Developers Fall

November 07, 2011

Nov. 7 (Bloomberg) -- China’s stocks fell, driving the benchmark index to its biggest loss in two weeks, on speculation the government won’t ease monetary policy even as the economy slows, hurting demand for products from autos to cement.

SAIC Motor Corp., the country’s biggest listed automaker, tumbled 4.4 percent as industry passenger-car sales slumped in October. Anhui Conch Cement Co., the largest producer of the building material, slid the most in two weeks after Samsung Securities Co. said Chinese cement prices fell 1 percent last week. China Vanke Co. led declines for developers after Phoenix TV reported Premier Wen Jiabao as signaling the government won’t loosen its property curbs until home prices drop.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 18.5 points, or 0.7 percent, to 2,509.8 at the close, the biggest loss since Oct. 21. The measure jumped 2.2 percent last week, the most among major Asian markets. The CSI 300 Index slid 1 percent to 2,736.25 today.

“Wen’s comment on property prices dragged down real estate names and also brought concern that this may mean easing measures may be delayed,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s also uncertainty among investors before data this week.”

China’s inflation rate probably eased to 5.4 percent in October, from 6.1 percent in September, according to the median forecast of economists surveyed by Bloomberg before a statistics bureau report on Nov. 9. The rate may be 5.5 percent in October and more than 5 percent in November and December, the China Securities Journal reported today, citing Fan Jianping, director of economic forecasting at the State Information Center.

Automakers Slump

The Shanghai Composite has fallen 11 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation that’s near a three-year high. It’s valued at 11.8 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

A gauge of consumer discretionary stocks in the CSI 500 dropped 1.5 percent, the most among the 10 industry groups after financial companies. SAIC plunged 4.4 percent to 15.90 yuan, the most in almost a month. Beiqi Foton Motor Co. slid 2 percent to 7.87 yuan.

China’s passenger-car sales fell 4.2 percent last month from a year earlier to 1.1 million units, China’s Passenger Car Association said today in a statement on its website. Auto sales in China will rise 3 percent to 5 percent this year, according to the China Association of Automobile Manufacturers, compared with the 32 percent growth last year.

Anhui Conch dropped 2.4 percent to 19.41 yuan. The stock jumped 19 percent last year on speculation the company would benefit from rising cement demand for the construction of low- income housing. Huaxin Cement Co. declined 3.7 percent to 19.15 yuan today.

Property Curbs

Chinese cement prices declined 1 percent last week, Samsung Securities reported, citing data from Digital Cement. “The price falls in Gansu and Qinghai were partly driven by the start of the winter low season in northwest China, and partly due to delays in new project starts because of tight credits,” Samsung said in a report. “We expect the down trend to continue in most of the northwest provinces.”

China won’t waiver over property market curbs with the aim of bringing home prices to a reasonable level, Wen said in Russia, according to Phoenix TV. Property developers are hoping in vain for a loosening of regulations and monetary policy which would allow them to raise property prices, Ma Guangyuan, an economist with the Chinese Academy of Social Sciences, wrote in a commentary in the China Daily today.

‘Uncertainty’ Over Data

A gauge of property companies in the Shanghai Composite slid 1.2 percent, the most among the five industry groups. China Vanke, the nation’s biggest listed property developer, declined 2 percent to 7.68 yuan. Gemdale Corp. fell 3.8 percent to 4.83 yuan. The government this year increased down-payment requirements and mortgage rates on some homes and imposed housing purchase restrictions in about 40 cities.

“There is uncertainty before the macroeconomic data on Wednesday, so investors are selling,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “This is especially so after China stocks gained last week.”

The Shanghai Composite has rebounded 8.3 percent from this year’s low on Oct. 21, after the government announced measures to help small businesses through easier access to bank loans and said it will lower the threshold for payment on value-added and business taxes for small companies.

Goldman Recommendation

Goldman Sachs Group Inc. advised buying Chinese stocks as the nation’s economy will grow “close to trend” in the coming quarters, spurred by easing credit and government measures to help small companies.

“We are recommending a long position in Chinese equities,” Goldman Sachs strategists said in a note to clients. “The market may be poised to continue to shift from the pricing in of hard-landing scenarios to the pricing in of some policy- driven relief and reacceleration.”

China’s central bank probably won’t follow Group of 20 counterparts such as Brazil and Australia in cutting interest rates unless there is a deeper slowdown in manufacturing and inflation, based on historical patterns tracked by Bloomberg.

“There’s no urgency for a rate cut,” Ken Peng, senior economist for China at BNP Paribas SA, said in an interview. “Shifting to a loose monetary policy needs a consensus among government officials, which will only be reached when economic growth weakens more obviously.”

Greek Bailout

Jiangxi Copper Co., the nation’s biggest copper producer, slid 2.1 percent to 28.20 yuan. Yunnan Copper Industry Co. declined 2.3 percent to 19.32 yuan.

Copper futures declined as much as 0.7 percent in London as concern Italian Prime Minister Silvio Berlusconi will fail to muster a majority for a key parliamentary vote tomorrow overshadowed Greece’s plans to form a national unity government. Italy’s parliament will vote tomorrow on the 2010 budget report amid an unraveling of Berlusconi’s majority and a surge in the nation’s borrowing costs.

--Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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