Bloomberg News

China Stocks Fall on Economic Concern, Capping 4th Weekly Slump

December 04, 2011

Dec. 2 (Bloomberg) -- China’s stocks fell, capping a fourth week of losses for the benchmark index, as sliding property prices and the slump in manufacturing added to concern the economic slowdown is deepening.

China Shenhua Energy Co. and Jiangxi Copper Co. led losses for energy and material producers, the biggest decliners among 10 industry groups in the CSI 300 Index after utilities. China Southern Airlines Co. the largest domestic carrier, plunged 3.2 percent after the China Securities Journal said the government raised wholesale jet fuel prices.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 26.20 points, or 1.1 percent, to 2,360.66 at the close. It fell 0.8 percent this week. The CSI 300 lost 1 percent to 2,557.31 today. The Bloomberg China-US 55 Index was little changed at 101.09 at the close in New York.

“Investors remain concerned about the weak economy after yesterday’s one-day rally,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “There’s nothing spectacular that will really push stocks up and there’s the PMI data that wasn’t reflected yesterday because everyone was focusing on the reserve ratio cut.”

The Shanghai Composite rose 2.3 percent yesterday, as the first cut in lenders’ reserve requirements since 2008 overshadowed a report showing the Purchasing Managers’ Index contracted for the first time in two years.

The stocks measure fell 0.8 percent this week, adding to this year’s 16 percent slump, after the central bank raised interest rates three times and lifted the reserve-requirement ratio six times to curb inflation that reached a three-year high of 6.5 percent in July. The index is valued at 11.2 times estimated earnings, compared with a four-year average of 17.3 times, according to weekly data compiled by Bloomberg.

Commodity Stocks

Gauges of energy and material stocks in the CSI 300 lost more at least 1.8 percent. Jiangxi Copper, the biggest copper producer, decreased 2.9 percent to 25.59 yuan, while Yanzhou Coal Mining Co. retreated 2.5 percent to 25.58 yuan. China Shenhua Energy, the largest coal producer, fell 1.7 percent to 25.61 yuan.

China’s challenge in loosening monetary policy is to sustain the expansion of the world’s second-largest economy without spurring price gains, fueling bad loans or reigniting a real estate boom that has started to deflate. The Purchasing Managers’ Index fell to 49.0 in November from 50.4 in October, the China Federation of Logistics and Purchasing said yesterday. A level below 50 shows contraction.

China Southern Airlines dropped 3.2 percent to 5.5 yuan. Rival China Eastern Airlines Corp. retreated 2.3 percent to 4.25 yuan. China raised wholesale jet fuel prices by 376 yuan per ton to 7,653 yuan per ton in December, the China Securities Journal reported, without saying where it got the information.

Property Slump

China’s home prices fell for a third month in November as developers started to cut prices to boost sales amid the government’s housing curbs, according to SouFun Holdings Ltd. Home prices dropped 0.28 percent last month from October, when they retreated 0.23 percent, SouFun, the nation’s biggest real estate website owner, said yesterday.

Shanghai home transactions by area slumped 53 percent last month from a year earlier, Shanghai Securities News reported today, citing data from Shanghai Deovolente Realty.

Premier Wen Jiabao has said the government won’t relax property curbs after raising down-payment and mortgage requirements and imposing home purchase restrictions in about 40 cities this year to avert a bubble.

Rate Outlook

“China does have scope to cushion the downturn through fiscal and selective monetary easing,” said Masha Gordon, the head of emerging markets equity portfolio management at Pacific Investment Management Co., which oversees about $1.35 trillion worldwide. “The key, as always, is whether policy makers manage to stay ahead of the market. This may prove to challenging.”

Eleven economists of 19 in a Bloomberg News survey conducted yesterday say interest rates will stay unchanged through next year and another three predict increases. Goldman Sachs Group Inc. and HSBC Holdings Plc are among five that see cuts.

China, the world’s second-largest economy, expanded 9.1 percent in the third quarter from a year ago, the least in two years. The growth will slow to 8.5 percent next year, the Organization for Economic Cooperation and Development said in a Nov. 29 report, down from its May forecast of 9.2 percent.

Citigroup Inc. forecast Chinese stocks to be “range- bound” for most of 2012, with A shares to trade from 2,400 to 2,800 and reaching as high as 3,200. H shares may trade between 10,700 and 12,000 next year and reach a high of 14,000, according to a report yesterday by Minggao Shen, head of Chinese research at Citigroup.

B Shares

The Shanghai SE B Share Index, whose shares are traded in U.S. dollars, dropped 3.5 percent today. The measure slid 8.4 percent this week, the most in almost six months on fund outflows, concerns about the introduction of the Shanghai International Board and speculation yuan appreciation will slow.

Emerging-market equity funds had withdrawals of $500 million, Citigroup Inc. analyst Markus Rosgen wrote in a report dated today. China was the “hardest hit” among Asian countries with outflows of $300 million, the report said.

Strategists predict the yuan will be the worst performer of currencies in the biggest emerging markets over the next four months as sluggish exports curb appreciation. China’s currency will advance 1.6 percent to 6.27 per dollar by the end of March, based on the median of analysts’ estimates compiled by Bloomberg as of Nov. 30.

--With assistance from Belinda Cao in New York. Editors: Allen Wan, Richard Frost

To contact the reporter on 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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