Bloomberg News

China Stocks Drop as Property Developers Fall; Banks Gain

January 22, 2013

China’s stocks fell for the first time in three days, led by property developers, after valuations for the benchmark index approached eight-month highs.

Poly Real Estate Group Co. (600048), the nation’s second-largest developer, declined 2.1 percent, paring gains since the end of August to almost 50 percent. Tsingtao Brewery Co., China’s second-biggest brewery by volume, dropped 1.2 percent as Citigroup Inc. turned negative on the stock. China Citic Bank Corp. climbed 3.1 percent to lead bank stocks higher.

The Shanghai Composite Index (SHCOMP) slid 0.6 percent to 2,315.14 at the close. The index is valued at 12.8 times reported profit, near the highest level since May, data compiled by Bloomberg show. The CSI 300 Index (SHSZ300) lost 0.5 percent to 2,596.90. The Hang Seng China Enterprises Index (HSCEI) advanced 0.5 percent.

“There’s profit-taking so we need a few sessions of consolidation before it can go higher,” said Deng Wenyuan, an analyst at Soochow Securities Co. in Suzhou, near Shanghai.

The Shanghai measure has risen 18 percent since approaching a four-year low on Dec. 3 amid signs of an economic recovery and on speculation urban development will increase construction demand.

Chinese stock losses accelerated in the afternoon after the official Xinhua News Agency responded to China Securities Regulatory Commission Chairman Guo Shuqing’s comments that intervention in the stock market is necessary at “key moments.”

Guo was cited by Xinhua as saying that it’s necessary to intervene as the market is not mature. He was speaking at a government national securities and futures supervision meeting. The immaturity of any stock market shouldn’t be an excuse for market intervention, Xinhua said in an unsigned commentary posted on its Sina microblog.

Property Valuations

“The Xinhua report might indicate that there will be less government intervention from now on,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “That’ll damp expectations that the government will bolster the market the next time there are any big slumps.”

The CSRC has expanded foreign investor quotas to buy stocks, cut trading fees and pushed companies to increase dividends since Guo became chairman in 2011. The Shanghai index fell in 2010 and 2011 before gaining 3.2 percent last year.

The gauge’s average trading volumes were 25 percent higher than the 30-day average today. Its 30-day volatility was at 20.4, compared with last year’s average of 17.1.

A gauge of property stocks in the Shanghai Composite slid 1.4 percent today, the most among five industry groups. The measure has rallied 21 percent since Dec. 3.

Poly Real Estate lost 2.1 percent to 13.68 yuan. The stock had jumped 54 percent through yesterday since Aug. 29 on expectations rising property sales will boost profit.

Consumer Staples

China Merchants Property Development Co. (000024), the third largest, lost 0.9 percent to 29.74 yuan. Gemdale Corp., the fourth biggest, fell 1.3 percent to 6.81 yuan.

Tsingtao Brewery lost 1.2 percent to 33.53 yuan. The beer industry may see more competition and overcapacity pressure in 2013, Citigroup said in a report dated yesterday. Investors should stay cautious on consumer-staples producers as “sector growth is slowing,” Citigroup said.

Wuliangye Yibin Co., the nation’s second-largest liquor maker, slid 1.7 percent to 26.36 yuan. Sichuan Swellfun Co., the Chinese liquor maker that’s a partner of Diageo Plc, fell 2.7 percent to 18.39 yuan.

Citic Bank rose 3.1 percent to 4.68 yuan. Bank of Ningbo Co., part-owned by Singapore’s Oversea-Chinese Banking Corp., jumped 6.2 percent to 11.48 yuan. Ping An Bank Co. gained 4 percent to 2048 yuan.

“The valuations of banking stocks are still low,” said Wang Zheng, the Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages $120 million. “Lots of investors who missed out on the rally are buying banking stocks, which have a valuation advantage.”

The 14 banks trading on the Shanghai Stock Exchange are valued at an average of 6.5 times reported earnings, compared with the multiple of 12.9 for the Shanghai Composite, according to data compiled by Bloomberg.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net; 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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