Bloomberg News

China’s Stocks Fall on Concern Japan Tensions May Hurt Economy

September 18, 2012

China’s Stocks Fall to Two-Week Low on Japan Political Dispute

Panasonic Corp. and Canon Inc. yesterday said they’re shutting some plants in China through today and the China Automobile Dealers Association said the protests will hurt sellers of Toyota, Honda and Nissan cars in China more than Japan’s March 2011 earthquake. Photographer: Haruyoshi Yamaguchi/Bloomberg

China’s stocks fell, capping the biggest two-day drop in almost six months, on concern escalating tensions with Japan over a territorial dispute will hurt trade and deepen an economic slowdown.

Guangzhou Automobile Group Co., which has ventures with Japanese automakers including Toyota Motor Corp., slid to a record low as a Chinese industry association said some dealerships that sell Japanese cars shut after outlets were attacked. Chengdu Galaxy Magnets Co., which derived two-thirds of revenue from Japan, dropped to the lowest this month. Zijin Mining Group Co. and Jiangxi Copper Co. led a gauge of material producers to the biggest slump among 10 industry groups.

“Historically, whenever there’s unrest nearby, stocks will decline because of the uncertainty,” Zhang Gang, a strategist at Central China Securities Holdings Co., said by phone in Shanghai today. “With no new stimulus from the central bank, investors are negative and stocks keep going down.”

The Shanghai Composite Index (SHCOMP) slumped 0.9 percent to 2,059.54 at the close, the lowest close since Sept. 6, while the CSI 300 Index (SHSZ300) declined 1 percent to 2,235.24. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong retreated 0.9 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 1.7 percent in New York.

The Shanghai Composite had fallen 6.4 percent this year on concern the government isn’t loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. It’s valued at 9.4 times estimated earnings, compared with the 17.5 average since Bloomberg began compiling the weekly data in 2006.

Political Crisis

China reserves the right to take further action concerning its island dispute with Japan, Chinese Defense Minister Liang Guanglie said at a briefing today with U.S. Defense Secretary Leon Panetta. Japan Chief Cabinet Secretary Osamu Fujimura said the government received a report that two Japanese landed on one of the disputed islands today and left after being warned by the Coast Guard. Fishing boats that are suspected to be from China or Taiwan were seen near islands disputed between Japan and China, Kyodo News reported, citing Japan’s Coast Guard.

China and Japan’s worst diplomatic crisis since 2005 is putting at risk a trade relationship that’s tripled in the past decade to more than $340 billion. Panasonic Corp. and Canon Inc. yesterday said they’re shutting some plants in China through today and the China Automobile Dealers Association said the protests will hurt sellers of Toyota, Honda Motor Co. and Nissan Motor Co. cars in China more than Japan’s March 2011 earthquake.

Inflation Concerns

Guangzhou Automobile declined 0.7 percent to 5.49 yuan, extending a record low. In Hong Kong, Dongfeng Motor Group Co., which produces cars with Nissan in China, plunged 4.8 percent to HK$9.16. Chengdu Galaxy Magnets Co., a magnetic alloy component maker that derived 69 percent of 2011 revenue from Japan according to Bloomberg data, slid 1.7 percent, extending yesterday’s 5.6 percent drop.

Stocks also fell after the Chinese central bank said it’s placing more emphasis on price stability, boosting concern it will delay easing monetary policy even as the economy slows.

The People’s Bank of China is focusing more on keeping “overall price levels basically stable,” it said in a report yesterday from Beijing. The authority has held off from loosening monetary policy further after cutting interest rates in June and July. Inflation that accelerated for the first time in five months in August may limit any monetary easing.

A third round of quantitative easing announced last week by the U.S. Federal Reserve reduces room for China’s policy easing as it may add to the nation’s inflationary pressure, Industrial Securities Co. said in a report yesterday.

QE3 Concern

The Shanghai Composite has gained 0.6 percent this month amid speculation QE3 will spur inflows in emerging markets. A rebound for stocks isn’t sustainable because the fundamentals of cyclical industries may not improve until the first half of next year, Cheng Dinghua, an analyst at Essence Securities, said in a report dated yesterday. Essence was second ranked for equity strategy research by New Fortune magazine last year.

A gauge of material stocks in the CSI 300 lost 2.2 percent, the most among the 10 groups. Zijin Mining, the biggest gold producer lost 2.3 percent to 3.89 yuan. Jiangxi Copper, the largest copper producer, slid 2.5 percent to 21.88 yuan. Commodities fell for the first time in eight days on concern that the U.S. stimulus may not be enough to jumpstart the U.S. economy and spur demand.

The Standard & Poor’s GSCI Index of 24 raw materials tumbled 2.2 percent to 678.68, the biggest one-day drop since July 23. Copper prices fell as much as 0.8 percent to $8,238 a metric ton on the London Metal Exchange, while spot gold fell as much as 0.4 percent to $1,753.75 an ounce.

Home Prices

Australia, the world’s biggest iron ore exporter, reduced its price forecasts for this year and next on concern that a slowing economy in China will curb demand growth.

China’s economy continues to face some difficulty for a period of time on the sluggish U.S. and European economies and because of domestic factors, according to a commentary published by Xinhua News Agency.

Chinese new home prices rose in fewer cities last month than in July, reducing concern that the government may issue new tightening measures. Prices climbed in 35 cities out of the 70 the government tracks, according to data released by the statistics bureau. Prices fell in 19 cities, the data showed.

Poly Real Estate Group Co., the second-biggest developer, gained 1.1 percent to 9.82 yuan. Gemdale Corp. advanced 0.2 percent to 4.87 yuan.

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

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


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