Bloomberg News

China’s Stocks Slump as New Leaders Announced

November 15, 2012

China’s stocks fell, dragging the benchmark index to a seven-week low, as the ruling party named a new generation of leaders to oversee an economy that is forecast to grow this year at the slowest pace in more than a decade.

China Construction Bank Corp. (939) slid 2.3 percent, leading declines for lenders, after a report showed the industry’s bad loans rose for a fourth straight quarter. Jiangxi Copper Co., the biggest Chinese copper producer, dropped 1.3 percent as Citigroup Inc. cut its rating on the stock. Citic Securities Co., the largest-listed brokerage, slid to the lowest in more than two months after it received a warning from its regulator.

The Shanghai Composite Index (SHCOMP) slid 1.2 percent to 2,030.29, the lowest close since Sept. 26. Xi Jinping was appointed general secretary of the Communist Party, putting him in line to become president. Wang Qishan, vice premier overseeing the financial sector, was named head of the party’s discipline body, indicating he won’t have a post directly overseeing the economy. Wang was elected to the Standing Committee today, along with Xi.

“The composition of the top leaders indicates a go-slow approach to reforms of the financial markets and the economy and not in an aggressive way as expected by the market,” said Dai Ming, a fund manager at Hengsheng Hongding Asset Management Co. in Shanghai, which manages $190 million. “That’s a bit negative.”

The CSI 300 Index (SHSZ300) lost 1.3 percent to 2,193.62, with nine out of 10 industry groups dropping at least 1 percent. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong retreated 1.8 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, fell 1.2 percent in New York yesterday.

New Leadership

The Shanghai Composite has fallen 7.7 percent this year on concern economic growth will slow unless the government reforms state-owned enterprises and allows private companies to flourish. The gauge 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.

Trading volumes on the index were 25 percent lower than the 30-day average, according to data compiled by Bloomberg. The 30- day volatility was at 14, compared with this year’s average of 17.1.

Xi succeeds Hu Jintao as general secretary of the 82 million-member party that has run China since 1949, the official Xinhua News Agency announced. Vice Premier Li Keqiang is forecast to replace Premier Wen Jiabao at a March meeting.

Leadership Composition

Li, Zhang Dejiang, Shanghai party boss Yu Zhengsheng, Liu Yunshan and Zhang Gaoli were also elected to the Politburo’s Standing Committee, the highest decision-making body, which was cut to seven members from nine. Wang is the direct counterpart to U.S. Treasury Secretary Timothy F. Geithner, who in 2009 said Wang is China’s “definitive preeminent troubleshooter, firefighter, problem solver.”

China’s new leaders will be more tolerant towards lower “new normal” rates of economic growth as the days of massive stimulus to boost the expansion are probably over, according to Barclays Plc. The economy is expected to grow 7.7 percent this year, according to estimates compiled by Bloomberg, which would be the slowest pace since 1999.

The composition of China’s new leadership may determine the pace of change on issues such as deregulating interest rates and breaking up state monopolies.

Investors are focused on whether the leadership is intent on reform, John Woods, a Hong Kong-based Asian strategist at Citigroup’s private bank, said in a Bloomberg Television interview. Woods said he’s advising clients to be cautious on Chinese stocks given policy uncertainty in China and global turmoil including the so-called fiscal cliff in the U.S.

Construction Bank, the country’s second-largest bank, fell 2.3 percent to 4.18 yuan. Industrial & Commercial Bank of China Ltd., the biggest, dropped 0.8 percent to 3.84 yuan. Bank of China Ltd. lost 0.7 percent to 2.81 yuan.

Bad Loans

Non-performing loans at Chinese banks rose by 22.4 billion yuan ($3.6 billion) in the three months ended Sept. 30, to 478.8 billion yuan, the China Banking Regulatory Commission said today. Bad loans gained at all types of banking institutions, including the largest state-owned lenders, rural banks and foreign banks, the regulator said.

Jiangxi Copper, China’s biggest producer of the metal, retreated 1.3 percent to 20.56 yuan. The stock was lowered to neutral from buy at Citigroup, which said there is ample metal supply to meet demand and the shares have already priced in a rebound in cooper prices.

Citic Securities fell 2.1 percent to 10.51 yuan, its lowest close since Aug. 31. The China Securities Regulatory Commission warned the brokerage for failing to reveal a “substantial profit decline” for a company whose initial public offering it was underwriting.

Fiscal Cliff

In the U.S., the S&P 500 Index tumbled 1.4 percent yesterday on concern the budget debate in Washington and after Israel carried out a series of air strikes in the Gaza Strip. President Barack Obama is negotiating to reach a deficit- reduction deal with Congress to avert $607 billion in automatic tax increases and spending cuts, or the so-called fiscal cliff.

The U.S. is China’s second-largest export market, making up about 17 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.

The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., lost 0.7 percent to a one- month low of $35.74, after surging 6.3 percent in October.

--Zhang Shidong. Editors: Allen Wan, Darren Boey

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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Companies Mentioned

  • FXI
    (iShares China Large-Cap ETF)
    • $39.87 USD
    • -0.41
    • -1.04%
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