Bloomberg News

China’s Stocks Drop Most in a Week on Europe, Economic Concerns

February 14, 2012

Feb. 14 (Bloomberg) -- China’s stocks fell the most in a week after Moody’s Investors Service cut the debt ratings of six European nations and a former central bank official said the government is unlikely to significantly loosen credit this year.

Jiangxi Copper Co. and Western Mining Co. led a decline for commodity producers on concern the European debt crisis will curb demand for metals. Shanghai Pudong Development Bank Co. and China Citic Bank Corp. slid at least 0.9 percent, pacing a retreat for financial stocks, on speculation tight credit will hurt profit. Guangzhou Hongli Opto-electronic Co. advanced to the highest this year after Citic Securities Co. recommended investors “overweight” the light-emitting diode industry.

The Moody’s downgrade is “not new but the timing is quite surprising,” Andy Mantel, founder and chief executive officer of Pacific Sun Advisors, said in an interview with Bloomberg Television today from Hong Kong. “You’ll see a bit negative shock for Asian markets as a whole.”

The Shanghai Composite Index dropped 7.08 points, or 0.3 percent, to 2,344.77 at the close, its biggest loss since Feb. 7. The CSI 300 Index lost 0.4 percent to 2,522.11. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, rose 1.6 percent yesterday in New York.

The Shanghai Composite has risen 6.6 percent this year on speculation the central bank will further cut lenders’ reserve- requirement ratios to spur growth. It announced a reduction in reserve ratios on Nov. 30, the first since 2008, after boosting them and interest rates last year to cool inflation.

European Downgrades

A measure of material stocks in the CSI 300 slid 0.6 percent today, the third most among the 10 industry groups. Jiangxi Copper, China’s biggest producer of the metal, fell 0.5 percent to 26.36 yuan. Western Mining, the nation’s fourth- largest maker of zinc concentrate, dropped 0.8 percent to 10.60 yuan. Yunnan Aluminium Co., the country’s fifth-largest producer of the light metal, retreated 1.4 percent to 5.80 yuan.

Spain was downgraded to A3 from A1 with a negative outlook, Italy was downgraded to A3 from A2 with a negative outlook and Portugal was downgraded to Ba3 from Ba2 with a negative outlook, Moody’s said. The agency also revised its outlook on the U.K.’s and France’s top Aaa rating to “negative.”

Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

No Significant Loosening

Pudong Bank, a partner of Citigroup Inc., slid 0.9 percent to 9.19 yuan. Citic Bank, the banking unit of the nation’s largest investment company, fell 1.4 percent to 4.40 yuan. Industrial & Commercial Bank of China Ltd., the biggest listed lender, lost 0.3 percent to 3.02 yuan. China Construction Bank Corp., the second largest, slipped 0.4 percent to 2.70 yuan.

The government is unlikely to significantly loosen credit this year if the economy faces difficulties, Wu Xiaoling, former deputy governor of the central bank, said at a forum in Beijing yesterday. Economic growth is set to slow this year as a result of weakening external demand, Xia Bin, an adviser to the central bank, said yesterday.

“With growth replacing inflation at the top of Beijing’s policy agenda, we believe both monetary and fiscal policies are set to ease further to support infrastructure, public housing and water resource projects,” Qu Hongbin and Sun Junwei, China economists at HSBC, said in a report.

Inflation could ease to below 4 percent for the first time in 17 months in February and the full-year rate will see a “clear deceleration” from 2011, an official with the nation’s top economic planning agency said.

Slowing Inflation

Consumer-price gains in February will see a “marked” decline due to a drop in food costs and comparatively high prices in the same month last year, Zhou Wangjun, vice director of the pricing department at the National Development and Reform Commission, said in a webcast with the Xinhua News Agency yesterday. Consumer prices rose 4.5 percent last month as food prices rebounded amid the Chinese new year.

Most Chinese stocks climbed yesterday after Premier Wen Jiabao said the nation needs to start “fine-tuning” economic policies this quarter, fueling speculation the government will soon ease policy to preserve growth in the world’s second- biggest economy. New lending missed estimates by 26 percent in January and money supply grew the least in more than a decade, according to data released by the central bank on Feb. 10 after the market closed.

‘Break Out’

China’s A shares are poised to “break out” based on technical signals, according to Macquarie Group Ltd. The CSI 300 has advanced the past four weeks.

“We are seeing possible signs of a sustainable rebound here,” Jiong Shao, head of China strategy at Macquarie, said in a report. The CSI 300 “appeared to have broken out of a down trend which lasted over a year” with the Relative Strength Index “solidly in the bullish zone in the last four weeks. While we may need another week or two to conclude, the break-out signs are getting too hard to ignore.”

Guangzhou Hongli jumped 2.8 percent to 16.08 yuan. Citic Securities rated the stock “outperform” in initial coverage, according to a report. Dongguan Kingsun Optoelectronic Co. gained 3 percent to 27.75 yuan.

LED makers’ profits may “bottom out” in the first quarter and rise in the second quarter as a ban on fluorescent lights overseas this year will be an important opportunity for them, the report said.

The China Securities Regulatory Commission is vetting an application from E Fund Management Co. to start the mainland’s first exchange-traded fund tracking Hong Kong-listed shares of Chinese companies.

“It will be China’s first ETF fund investing in Hong Kong’s stock markets,” said Lu Huitian, an analyst at Howbuy. “Mainland investors will have more investment options as ETFs are very convenient for them to buy and sell while it’s also definitely a boost to Hong Kong stocks.”

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., advanced for the first time in three days, increasing 1.3 percent to $39.42.

--Zhang Shidong. Editors: Allen Wan, Ravil Shirodkar

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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