Bloomberg News

China Stocks Fall to 2-Week Low as Policy Easing Bets Diminish

February 01, 2012

Feb. 1 (Bloomberg) -- China’s stocks fell to the lowest in two weeks on concern a rebound in manufacturing will reduce the need for more loosening of monetary policy and a cash crunch may worsen after a report on bank lending trailed estimates.

Agricultural Bank of China Ltd. and China Merchants Bank Co. led declines for lenders after the 21st Century Business Herald reported new loans in January may be below 1 trillion yuan ($158.6 billion). Anhui Conch Cement Co. slid 4.8 percent after Premier Wen Jiabao reiterated property curbs, boosting speculation demand for construction materials will slow. A government report showed a manufacturing index was 50.5 in January, above the level of expansion and economists’ estimates.

“The PMI was good, though it is subject to seasonal distortions,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. “The economy may be bottoming out but we still need to gauge more economic data in the coming months to confirm the trend. Investors’ focus still lies in the relaxation of monetary policies.”

The Shanghai Composite Index fell 24.53 points, or 1.1 percent, to 2,268.08 at the close, the lowest since Jan. 18. The CSI 300 Index dropped 1.4 percent to 2,428.99. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.7 percent yesterday in New York.

China’s manufacturing expanded last month on increased new orders, suggesting the economy is withstanding Europe’s debt crisis and a government-induced property slowdown at home. The purchasing managers’ index rose from 50.3 in December, China’s statistics bureau and logistics federation said in a statement. A reading above 50 indicates expansion.

Less ‘Aggressive’ Easing

The Lunar New Year holiday, which ran from Jan. 22 through Jan. 28, helped boost consumer spending and domestic demand, the statistics bureau said. A separate manufacturing index from HSBC Holdings Plc and Markit Economics index rose to 48.8 in January from 48.7 in December.

The manufacturing report cuts the need for “aggressive” policy easing, Fan Cheuk Wan, head of Asia-Pacific research at Credit Suisse Private Banking, said in an interview on Bloomberg Television in Hong Kong.

The Shanghai Composite climbed 4.2 percent in January, its best start to a year since 2009, on speculation slowing economic growth will push the central bank to relax monetary policies and the government will take measures to support stocks.

The index fell 22 percent in 2011 after the central bank raised interest rates three times and reserve ratios six times to cool inflation that accelerated to its fastest pace in three years in July. The measures also discouraged banks from lending to smaller companies. The Shanghai index trades at 9.3 times estimated earnings, near the record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg.

Banks Decline

AgriBank, the nation’s fourth-largest lender by assets, fell 0.7 percent to 2.68 yuan. China Merchants lost 1.4 percent to 12.47 yuan. China Minsheng Banking Corp., the nation’s first privately owned bank, dropped 2 percent to 6.29 yuan.

Total bank lending in the first 28 days of January may be 750 billion yuan to 800 billion yuan, the 21st Century Business Herald reported today, citing an unidentified person. New loans exceeded 1 trillion yuan in every January over the past three years, according to data compiled by Bloomberg.

China’s one-year interest-rate swaps climbed to the highest level in almost three months as maturing reverse-repurchase contracts decreased cash supply in the financial system.

Property Outlook

Anhui Conch, China’s biggest cement maker, dropped 4.8 percent to 16.54 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., fell 4 percent to 14.02 yuan. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, lost 1.4 percent to 5.02 yuan.

Premier Wen reiterated that the government will maintain curbs on the property market to bring prices down to a “reasonable” level and economic policies will be “fine- tuned” to support growth. His comments, posted on the central government’s website, were made at a meeting of the State Council yesterday.

Home prices dropped for a fifth month, sliding 0.18 percent last month from December, according to SouFun Holdings Ltd. It’s the longest losing streak since the nation’s biggest real-estate website began compiling the figures in July 2010. Residential prices slid in 60 of 100 cities tracked by the company, same as in December, it said in an e-mailed statement.

China Vanke Co., the nation’s biggest listed property developer, fell 1.2 percent to 7.56 yuan. Poly Real Estate Group Co., the second largest, lost 1.8 percent to 10.31 yuan.

--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


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