Bloomberg News

China’s Stocks Fall to 3-Week Low on Central Bank Report, IPOs

November 17, 2011

Nov. 17 (Bloomberg) -- China’s stocks fell, driving the benchmark index to a three-week low, as the central bank said it can’t loosen inflation controls and investors speculated new share listings may lure funds from existing equities.

China Life Insurance Co. and Ping An Insurance Group Co., the nation’s biggest insurers, both dropped 1.3 percent after New China Life Insurance Co. won regulatory approval for its initial public offering. Sinohydro Group Ltd., a dam builder that made its debut on the market last month, slid 0.9 percent. ZTE Corp. led a rally for telecom stocks, paring the market’s losses, after the phone-equipment maker said it will offer computer services to the nation’s two largest carriers.

“The IPO of New China Life Insurance is a dampener on the market as we worry it’s luring funds out,” said Zhang Yanbin, an analyst with Zheshang Securities Co. “Investors are also still concerned about contagion from the Europe debt crisis.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 3.91 points, or 0.2 percent, to 2,463.05 at the close, after changing direction at least 34 times. The CSI 300 Index slipped 0.3 percent to 2,662.02. The Bloomberg China-US 55 Index climbed 0.8 percent. The Shanghai gauge tumbled 2.5 percent yesterday as the slumping euro heightened concerns about the region’s economic slowdown. Fitch Ratings said Europe’s worsening debt crisis poses a “serious risk” to U.S. banks.

The Shanghai Composite has fallen 12 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation. Stocks have also dropped on concern the European crisis will further slow China’s export growth. The index is valued at 11.6 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

Insurers Drop

China Life dropped 1.3 percent to 17.45 yuan. Ping An declined 1.3 percent to 37.24 yuan. New China Life Insurance, the insurer backed by Zurich Financial Services AG, may start gauging demand for an initial share sale of up to $3 billion in the next two weeks, two people with knowledge of the matter said. The company plans to sell 158.54 million shares in China as well as equities in Hong Kong, it said.

Sinohydro Group sank 0.9 percent to 4.69 yuan. The country’s largest builder of hydroelectric dams raised 13.5 billion yuan in its IPO in October. Sinochem Corp. last week said it plans to raise as much as 35 billion yuan ($5.5 billion) in what would be China’s biggest IPO this year, according to data compiled by Bloomberg.

‘Selective Easing’

China’s central bank reiterated Premier Wen Jiabao’s pledge to “fine-tune” policies when needed. While inflation may continue to moderate, “the foundation of price stability is not yet solid,” the People’s Bank of China said yesterday in its third-quarter monetary policy report. “Extremely loose” global monetary conditions, and rising domestic labor and resource costs may “exacerbate inflationary expectations,” according to the report on the PBOC’s website.

The central bank’s third-quarter report “repeatedly mentioned monetary policy mix,” Dong Tao, an economist at Credit Suisse Group AG, wrote in the report dated today. “We do not sense signs of an across-the-board easing, as the central bank seemed happy with the current pace of growth and inflation. Selective easing is more likely.”

A Chinese leading indicator rose, suggesting the world’s second-biggest economy is weathering moderating export growth and a government campaign to curb consumer and property prices.

The index increased 0.4 percent to 160.2 in September, The Conference Board said on its website today, citing a preliminary reading. The gauge is designed to capture prospects over the coming six months. August’s index was revised to a 0.6 percent gain from a previous 0.5 percent increase.

Inflation Outlook

Inflation may slow below 5 percent next year, allowing the central bank to reduce the reserve ratio requirement by the first quarter, “if not sooner,” strategists led by Henry McVey, head of global macro and asset allocation at KKR & Co., wrote in a research note. Slowing inflation may allow China’s central bank to loosen monetary policies, boosting “beaten- down” stocks and other high-yielding assets, according to KKR.

China’s consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July, giving the government greater scope to unwind monetary tightening as Europe’s debt crisis hurt exports.

Fitch Ratings said that while U.S. lenders have “manageable direct exposures” to Greece, Ireland, Italy, Portugal and Spain, further turmoil in those markets poses a “serious risk.” The Bank of England Governor Mervyn King said Britain faces a “markedly weaker” outlook for the economy as Europe’s crisis threatens global growth.

Telecom Stocks

A gauge of telecom stocks rose 0.4 percent in the CSI 300, the most among 10 industry groups. ZTE gained 1.4 percent to 18.94 yuan after signing up China Mobile Ltd. and China Unicom (Hong Kong) Ltd. for a virtual office, its president Shi Lirong said. The service offers computing storage and networking in one platform, he said. Cloud computing will account for one-third of the company’s sales within three to five years, it estimated in May.

Hebei Iron & Steel Co. added 1 percent to 4.06 yuan. The company plans to sell as many as 3.8 billion additional shares at 4.28 yuan each, raising as much as 16 billion yuan to finance an acquisition, according to a statement from the Chinese steelmaker to Shenzhen’s stock exchange.

--Weiyi Lim. 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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