Bloomberg News

China’s Stocks Fall to Lowest in 33 Months on Economic Concerns

December 14, 2011

Dec. 14 (Bloomberg) -- China’s stocks fell to the lowest level in 33 months, after an index of leading indicators signaled the economy will slow further and the government said it will stick with measures to lower property prices.

Anhui Conch Cement Co. and Aluminum Corp. of China Ltd. led declines for material companies after the Conference Board’s leading index fell in October. Poly Real Estate Group Co., China’s second-largest developer, dropped 2.1 percent after Xinhua News Agency reported the nation’s leaders as pledging to “unswervingly” implement real-estate curbs next year.

“It looks like the government has no big plan to bolster economic growth aggressively next year and the market is a bit disappointed,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “With exports and investment, the two major drivers for China’s growth, still slowing, the market isn’t about to end the decline soon.”

The Shanghai Composite Index fell for a fifth day, losing 20.07 points, or 0.9 percent, to 2,228.53 at the close, the lowest level since March 2009. The CSI 300 Index slumped 1 percent to 2,397.48. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 0.7 percent in New York yesterday.

The Shanghai Composite has slid 3.7 percent this month as concern about a slowdown in economic growth outweighed the first cut in lenders’ reserve requirement ratios in three years by the central bank on Nov. 30. The index has tumbled 20 percent in 2011, exceeding last year’s 14 percent decline, after the central bank raised interest rates to combat inflation and curb property-price gains.

Leading Economic Index

A gauge of material companies in the CSI 300 retreated 1.7 percent, the second most among the 10 industry groups. Anhui Conch, China’s biggest cement maker, lost 3.4 percent to 15.23 yuan. Gansu Qilianshan Cement Group Co. fell 2.2 percent to 9.26 yuan. Aluminum Corp. of China fell 3 percent to 7.10 yuan.

The Chinese leading index declined 0.1 percent to 160.1 in October, The Conference Board said in a statement today, citing a preliminary reading. The gauge captures prospects for the next six months, the New York-based research organization said. The measure rose 0.4 percent in September.

The nation will target “basically stable” consumer prices and “unswervingly” implement real-estate curbs, according to a statement after an annual economic planning meeting in Beijing. At the same time, officials will seek “steady and relatively fast growth,” Xinhua said.

Developers Slump

Poly Real Estate, China’s second-largest developer by market value, declined 2.1 percent to 9.38 yuan. China Vanke Co., the biggest, slid 1 percent to 7.10 yuan. Gemdale Corp. slipped 0.9 percent to 4.45 yuan. A gauge of property stocks in the Shanghai Composite has fallen 19 percent this year after sliding 28 percent in 2010.

“The market is saying the numbers that will be coming in the next few quarters out of China will not be good,” Nicholas Yeo, the Hong Kong-based head of China and Hong Kong equities at Aberdeen Asset Management Plc, which oversaw about $264 billion as of Sept. 30, said in a phone interview yesterday. “There are signs of deceleration.”

New local-currency lending was 562.2 billion yuan ($88 billion) last month, the People’s Bank of China said today after the market closed. That compares with 587 billion yuan in October. M2, a measure of money supply, rose 12.7 percent, the least since May 2001.

HSBC Holdings Plc and Markit Economics are scheduled to release its preliminary manufacturing index for this month, known as the Flash PMI, at 10:30 a.m. tomorrow. It was at 48 last month, below the 50 threshold for expansion.

Bearish Options

Options traders are paying the most since August 2010 to protect against losses in Chinese stocks as growth and exports slow in the second-largest economy.

Six-month puts on the iShares FTSE China 25 Index Fund, a U.S.-listed security that tracks 25 Chinese companies trading in Hong Kong, cost 23 percent more than calls, according to data compiled by Bloomberg. The price relationship known as skew jumped to 24 percent on Dec. 9, reaching the highest level in 16 months. The average for the last five years is 13 percent.

Electricity producers advanced as UOB-Kay Hian Ltd. said the outlook for power stocks has turned positive.

Huaneng Power International Inc., the listed unit of China’s largest power group, gained 5.3 percent to 4.80 yuan, the biggest gain since Oct. 31. Datang International Power Generation Co., a unit of the nation’s second-biggest electricity producer, advanced 2.2 percent to 4.60 yuan.

Power Stocks

“Investors’ view on IPP stocks has turned more positive, in light of the recent power tariff increase and coal price cap,” Shi Yan, a Shanghai-based analyst at UOB-Kay Hian, said by telephone, referring to independent power producers. “More policies in favor of China’s IPPs are expected to come out next year to prevent power outages.”

The Shanghai Composite may gain 20 percent to 25 percent next year as the government eases monetary policy to support economic growth, according to BNP Paribas SA.

Chinese stocks will have a “weak” first quarter because of the economic slowdown in the U.S. and Europe, Dorris Chen, head of China research at BNP, said in an interview at Bloomberg’s Shanghai office today. Equities will rebound in the second and third quarters as the central bank loosens monetary policy, she said.

--Zhang Shidong. Editor: Allen Wan

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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


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