Dec. 27 (Bloomberg) -- China’s stocks fell, driving the benchmark index to a two-year low, after profit growth for industrial companies slowed and a jump in interbank borrowing costs signaled the nation’s cash crunch is worsening.
Anhui Conch Cement Co. and SAIC Motor Corp. dropped more than 2 percent after a report showed industrial firms’ earnings growth in the first 11 months of the year decelerated. China Construction Bank Corp., the country’s second-largest bank, slid to a two-month low after interbank borrowing costs surged the most since June. China Vanke Co. and Poly Real Estate Group Co. led declines for developers after Soufun Holdings Ltd. said home transactions plunged last week.
“Tight liquidity and slowing economic growth are key concerns for investors and that hasn’t changed,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Stocks have room for further declines because we don’t see a reversal of fundamentals.”
The Shanghai Composite Index fell 23.91 point, or 1.1 percent, to 2,166.21 at the close, the lowest close since March 2009. The CSI 300 Index lost 1.3 percent to 2,305.03. A measure of small and medium-size companies slid 2.4 percent in Shenzhen. Hong Kong’s market is shut today, while the U.S. was closed yesterday for the Christmas holiday.
The Shanghai Composite has fallen 7.2 percent in December as concern about an economic slowdown overshadowed the first cut in reserve requirement ratios last month. The measure trades at a record low of 10.4 times estimated earnings, according to data compiled by Bloomberg dating back to 2006. For the year, the measure is down 23 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.
Shares worth 36.6 billion yuan ($5.78 billion) traded on the Shanghai Stock Exchange yesterday, the lowest since Dec. 31, 2008, according to data compiled by Bloomberg. The daily average turnover is 22 percent lower this year than in 2010, Bloomberg data showed.
Anhui Conch, China’s biggest cement maker, dropped 2.4 percent to 15.11 yuan. SAIC, China’s largest carmaker, slumped 4.1 percent to 13.44 yuan. Sany Heavy Industry Co., the biggest Chinese machinery maker, fell 1.9 percent to 11.94 yuan.
Net income for Chinese industrial companies increased 24.4 percent in the first 11 months of 2011 from a year earlier to 4.66 trillion yuan ($737 billion), the National Bureau of Statistics said on its website today. The pace compared with 25.3 percent gain in the first 10 months and a 27 percent rise in the first three quarters.
Construction Bank lost 0.9 percent to 4.50 yuan. China Citic Bank Corp., the banking unit of the nation’s largest investment company, fell 1 percent to 3.97 yuan. Huaxia Bank Co., partly owned by Deutsche Bank AG, retreated 0.7 percent to 11.10 yuan.
The Shanghai interbank offered rate, a gauge of the cash banks have on hand to lend to each other, has surged 105 basis points this month to 5.85 percent, the biggest monthly gain since June.
The jump in one-month interbank borrowing costs is adding to speculation the People’s Bank of China will cut reserve requirements to support economic growth.
“It’s possible the PBOC will cut the reserve ratio again before the Chinese New Year,” a week-long holiday that starts Jan. 23, said Lily Wei, a fixed-income manager in Beijing at Harvest Fund Management Ltd., which manages about $1.7 billion. “Demand for loans usually shoots up at the beginning of the year. Given GDP and other indicators signal slowing, if the PBOC really wants to boost growth, it’ll lower the reserve ratio.”
The central bank lowered the amount of cash commercial lenders must set aside as reserves on Nov. 30, the first cut in three years.
Vanke, the nation’s biggest listed property developer, fell 2.1 percent to 7.37 yuan. Poly Real Estate Group Co., the second largest, lost 3.2 percent to 9.76 yuan. China Merchants Property Development Co. retreated 2.3 percent to 17.80 yuan.
Housing transactions declined in 29 out of 35 cities tracked by Soufun during Dec. 19-25, according to an e-mailed report by Soufun, the country’s biggest real estate website owner.
China will set a growth target of about 11 percent for industrial output in 2012, the same goal as this year, the Ministry of Industry and Information Technology said yesterday. Industrial production will probably grow 13.9 percent this year, China National Radio reported separately yesterday, citing comments by Minister Miao Wei at a conference.
--Zhang Shidong. Editors: Allen Wan, Shiyin Chen
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