Bloomberg News

China Stocks Fall to 7-Week Low on Property Tax, Retail

November 13, 2012

China’s stocks fell to the lowest level in seven weeks after the Xinhua News Agency reported the government may expand a property tax trial and Haitong Securities Co. said retailers may post weak sales this month.

China Vanke Co. (000002) and Poly Real Estate Group Co. led declines for developers after Xinhua cited the housing minister as saying the government is watching for signs of surging transaction volumes and home prices. Suning Appliance Co. (002024) plunged 4.2 percent as Haitong said November sales for traditional retailers will be hurt by a shift towards online purchases. China Petroleum & Chemical Corp. (600028) slumped the most in two weeks after the Beijing Times said China may cut gas prices tomorrow.

“The economy seems to be stabilizing but there’s no solid evidence that it will pick up further,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Some investors are taking profits ahead of the year-end. Investors should avoid the property sector amid policy uncertainty.”

The Shanghai Composite Index (SHCOMP) slid 1.5 percent to 2,047.89 at the close, the lowest level since Sept. 26. The CSI 300 Index (SHSZ300) lost 1.8 percent to 2,212.44. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong retreated 1.7 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 0.1 percent in New York yesterday.

The Shanghai Composite rose 0.5 percent yesterday, halting a five-day decline, after export growth surpassed forecasts in October. Industrial production, fixed-asset investment and retail sales exceeded estimates last month while new lending trailed projections. The measure trades at 9.7 times estimated profit for 2012, compared with the 17.8 average multiple since Bloomberg began compiling the weekly data in 2006.

Developers Slide

Trading volumes in the Shanghai index were 9 percent lower than the 30-day average, data compiled by Bloomberg show. Thirty-day volatility was at 16.2, down from this year’s average of 17.2.

A gauge of property developers in the Shanghai index slid 2.1 percent, the most since Sept. 20. The measure is still up 12 percent this year, the only one of five industry groups to advance. Vanke, the biggest listed developer, fell 2.2 percent to 8.37 yuan. Poly Real Estate, the second largest, lost 1.4 percent to 11.46 yuan. China Merchants Property Development Co., the third biggest, sank 2.3 percent to 22.05 yuan.

The ministry is on “high alert” if both transaction volume and home prices increase “substantially,” Xinhua cited Minister of Housing and Urban-Rural Development Jiang Weixin as saying. Home prices have risen about 155 percent nationwide since reforms that privatized the country’s housing market in 1998. The government imposed a property tax for the first time in Shanghai and Chongqing and raised down-payment and mortgage requirements in its more than two-year effort to curb the property market.

State Control

The Shanghai Composite has retreated 2.8 percent since the Communist Party started its 18th congress on Nov. 8. Delegates are due to elect top leaders this week as the meeting concludes tomorrow. Vice president Xi Jinping is forecast to replace Hu Jintao as general secretary of the party.

China’s new leaders face the challenge of reining in the dominance of state-owned enterprises that has helped drag stock valuations down the most among the so-called BRIC nations in the past decade.

The Shanghai index’s valuation has fallen 76 percent to 11.4 times earnings in the decade through October, monthly data compiled by Bloomberg show. The 20 largest companies by weighting in the Shanghai index are all state-controlled, meaning national interests sometimes trump those of other shareholders.

Refiners, Retailers

“The overwhelming majority of listed companies in the stock market are state-owned whereas the most dynamic part of the economy is the private sector,” said Andy Rothman, China macro strategist for CLSA Asia-Pacific Markets in Shanghai. “You have a market that is making it difficult for investors to participate in the growth.”

China Petroleum, also known as Sinopec, fell 0.8 percent to 6.19 yuan, the lowest close since Oct. 26. PetroChina Co., the second-biggest refiner, declined 1.4 percent to 8.63 yuan.

China may lower gasoline and diesel prices tomorrow, the Beijing Times reported, citing analysts. The moving average of the three crude grades monitored by industry research agencies fell 3.86 percent as of Nov. 9, the newspaper said. The government may cut fuel prices on Nov. 15 by 310 yuan a ton, Shanghai-based commodity researcher C1 reported earlier this month. It would be the fourth reduction this year.

A gauge of consumer discretionary stocks in the CSI 300 slid 1.9 percent, the most among the 10 industry groups. Suning, China’s biggest home appliance retailer by market value, dropped 4.2 percent to 6.37 yuan. Guangzhou Friendship Group, which operates supermarkets and department stories in the southern Chinese city, slumped 1.6 percent to 10.96 yuan.

Money Supply

November sales for retailers including department stores, supermarkets and appliance stores will be weak after consumers splurged on the “Single’s Day” promotion on Nov. 11 by online retailers, Haitong analyst Elyse Wang wrote in a note.

M2, the broadest measure of money supply, increased 14.1 percent, compared with a median forecast of 14.5 percent, the People’s Bank of China said in a statement after the market closed yesterday.

“Money and credit supply in October was lower than expected by the market, probably a reflection of the cautious policy stance of the PBOC,” Yu Song and Yin Zhang, economists at Beijing Gao Hua Securities Co., wrote in a report. “The fall in M2 growth was partially the result of the disappearance of end of quarter effects, but the sharp rise in fiscal deposits also raises the possibility that fiscal policy may have become less stimulative.”

--Zhang Shidong. Editors: Allen Wan, Richard Frost

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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