Bloomberg News

China Stocks Cap Biggest Weekly Decline in Month on Home Prices

November 18, 2011

Nov. 18 (Bloomberg) -- China’s stocks fell, capping the benchmark index’s steepest weekly loss in a month, as home prices in some of the nation’s biggest cities slumped, the risk of bad loans increased and Europe’s debt crisis worsened.

China Vanke Co. and Poly Real Estate Group Co. the nation’s biggest developers, slid at least 2.9 percent after home prices fell last month in cities including Shanghai and Guangzhou. Bank of China Ltd. dropped to the lowest in a month after a person with knowledge of the matter said the China Banking Regulatory Commission warned lenders some projects backed by local governments may run out of funds. Jiangxi Copper Co. and PetroChina Co. led declines for commodity producers.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 46 points, or 1.9 percent, to 2,416.56 at the close. It dropped 2.6 percent this week, the most since the week ended Oct. 21. The CSI 300 Index slipped 2.1 percent to 2,606.50. The Bloomberg China-US 55 Index slid 2.2 percent in New York.

“The fall in home prices meant that margins of related companies may drop, causing a decline in property-related shares and a drag to the main index,” said Tang Yonggang, an analyst at Hongyuan Securities Co. “This may worsen bad loans in China as there will be an increased probability of loan defaults by property-related companies. The Europe debt crisis has a psychological effect on investors.”

The Shanghai Composite has fallen 14 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation. The index is valued at 11.4 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

Property Slump

A gauge of property stocks on the Shanghai Composite sank 2.3 percent, the most among five industry groups. China Vanke slid 2.9 percent to 7.9 yuan. Poly Real Estate lost 3 percent to 9.08 yuan. Gemdale Corp. fell 2.2 percent to 4.50 yuan.

New home prices in the major cities of Shanghai, Shenzhen and Guangzhou retreated from September after prices stalled for three months, while those in the capital city of Beijing were unchanged, the statistics bureau said today. The eastern city of Wenzhou posted the biggest drop of 4.6 percent, more than 10 times the average slide among the cities that posted declines.

Premier Wen Jiabao said this month the country won’t waver on its property restrictions, while analysts including Barclays Capital Research and asset managers such as CBRE Global Investors are betting price declines will force a policy reversal as the tightening weighs on economic growth. The government raised down payment and mortgage requirements this year and imposed home purchase restrictions in 40 cities.

Bank Loans

Bank of China, the nation’s third-largest lender by assets, slid 1 percent to 2.93 yuan. China Citic Bank Corp. slumped 2.1 percent to 4.24 yuan.

The banking regulator told lenders last week to step up asset sales and debt restructuring for unprofitable local government financing vehicles that are struggling to repay loans, the person said yesterday, declining to be identified as the instructions were private. The watchdog also said lenders should cut “high-risk” loans to developers, the person said.

The MSCI Asia Pacific Index fell 1.7 percent, extending declines by benchmark indexes in Europe and the U.S., after investors drove up the funding costs of France and Spain as the countries sold 11.6 billion euros ($15.6 billion) of debt yesterday.

Europe Concerns

German Chancellor Angela Merkel rejected yesterday French calls to deploy the European Central Bank as a crisis backstop, defying global leaders and investors calling for more urgent action to halt the turmoil. Merkel listed using the ECB as lender of last resort alongside joint euro-area bonds and a “snappy debt cut” as proposals that won’t work.

“The Europe crisis concern will drag on equities and prevent meaningful upside in the medium term at least,” said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai.

Jiangxi Copper slumped 3.4 percent to 26.08 yuan. PetroChina declined 1 percent to 9.81 yuan. Crude for December delivery fell as much as 81 cents to $98.01 a barrel in New York. Copper dropped 2.9 percent, the biggest loss for a most- active contract since Nov. 1.

HSBC Holdings Plc. boosted its 2012 forecasts for Chinese stocks by between four and 20 percent, with catalysts including a reshuffle among financial regulators, a rebound in profit margins as inflation eases and a “soft-landing” for the property market, according to a report to clients dated today. The Shanghai Composite will rise to 2,800 next year, up from the previous estimate of 2,700, while the Hang Seng China Enterprises Index may advance to 12,000, up from 10,000.

China’s new regulators are “proven, reform-minded problem solvers” who are a positive force for change in the financial industry and are “good” for the equity market, according to Steven Sun, head of China equity strategy at HSBC.

-- Editors: Richard Frost, Darren Boey

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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