China’s Stocks Drops on Rail Spending Outlook, Money Rate Jump
December 26, 2011, 6:40 PM ESTBy Bloomberg News
Dec. 26 (Bloomberg) -- China’s stocks fell, extending the longest weekly slide in three years, on a jump in money market rates and media reports the government will cut railway construction spending and maintain property curbs next year.
CSR Corp. and China Railway Construction Corp. led declines for train-related companies after the Xinhua News Agency said the railway ministry will reduce spending by 15 percent in 2012. China Minsheng Banking Corp. slid 1.8 percent, pacing a slump for lenders, after the money market rate surged to a five-week high. Inner Mongolian Baotou Steel Union Co. surged the most in six months after China Investment Securities Co. said shares of steelmakers are the cheapest in three years.
“The economy is still slowing and liquidity is tight at the year-end,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “Both factors are contributing to the weakness in the market these days. If the slowdown worsens, the government may introduce more aggressive measures to support the economy such as tax cuts.”
The Shanghai Composite Index slid 14.67 points, or 0.7 percent, to 2,190.11 at the close. The CSI 300 Index lost 1 percent to 2,335.70. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.9 percent at the close in New York on Dec. 23. Markets from Hong Kong to Singapore, the U.K. and the U.S. are closed today.
The Shanghai Composite dropped for a seventh week last week, the longest losing streak since the five days ended Sept. 19, 2008. The measure trades at a record low of 10.5 times estimated earnings, according to data compiled by Bloomberg dating back to 2006. For the year, the measure is down 22 percent after the central bank raised interest rates three times to cool inflation and exports to Europe slowed because of the region’s debt crisis.
Railway Investment
CSR, the biggest Chinese train maker, slumped 7.3 percent to 4.42 yuan. China CNR Corp., the second largest, lost 4.3 percent to 4.28 yuan. China Railway, builder of more than half the nation’s rail links since 1949, slid 1 percent to 3.99 yuan.
The railway ministry will invest 400 billion yuan ($63.2 billion) in rail infrastructure construction next year, the official Xinhua reported on Dec. 23, citing minister Sheng Guangzu. Spending was estimated at 469 billion yuan in 2011 and 709 billion yuan in 2010, according to the China Daily.
China set a growth target of about 11 percent for industrial output next year, China National Radio reported today, citing Miao Wei, minister of Industry and Information Technology. Industrial production grew 12.4 percent in November.
Tight Liquidity
The seven-day repurchase rate, a gauge of funding availability in the financial system, jumped 43 basis points, or 0.43 percentage point, to 4.16 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s set for the highest level since Nov. 23.
Minsheng Banking., the nation’s first privately owned bank, lost 1.8 percent to 5.89 yuan. Industrial Bank Co., part-owned by a unit of HSBC Holdings Plc, fell 1 percent to 12.39 yuan. China Construction Bank Corp., the second-biggest lender, retreated 0.4 percent to 4.54 yuan.
The People’s Bank of China lowered the lenders’ reserve requirement ratio for the first time since 2008 last month. The central bank had boosted the ratio to a record high to prevent excess lending from creating asset bubbles and stoking inflation.
The government will have to cut the reserve ratio to release liquidity next year if commercial banks’ foreign exchange purchase growth decline, news portal 163.com reported yesterday, citing former deputy central bank governor Wu Xiaoling. Wu is now a vice director of the finance and economy committee of the National People’s Congress, China’s top legislative body.
Developers Decline
Poly Real Estate Group Co., China’s second-biggest developer, slid 1.1 percent to 10.08 yuan. Gemdale Corp. plunged 2.4 percent to 4.86 yuan.
The nation will maintain property controls next year, Xinhua reported on Dec. 23, citing Housing Minister Jiang Weixin. The country will prioritize loans for first-home buyers and will support reasonable property purchase demand, it said. China has introduced measures this year including home-purchase restrictions in 40 cities and higher mortgage requirements to lower property prices.
Inner Mongolian Baotou Steel Union jumped 9.9 percent to 4.11 yuan, its biggest gain since June 7. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, rose 2.3 percent to 4.97 yuan. Angang Steel Co. gained 1.6 percent to 4.57 yuan.
Steel stocks provide “strong safety” as they trade at 0.99 times book value, compared with 1 times during the 2008 global financial crisis, Chu Xueliang, an analyst at China Investment Securities, wrote in a report yesterday.
--Zhang Shidong. Editors: Allen Wan, Shiyin Chen
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
