Chinese equities retreated in New York, capping their first slump in three quarters, on concern new limits on wealth-management products will reduce bank lending to real estate companies.
The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese stocks in the U.S. slipped 0.7 percent to 92.2 yesterday, for a 7 percent decline this quarter. SouFun Holdings Ltd. (SFUN:US), China’s biggest real estate information website, and property agent E-House China Holdings Ltd. (EJ:US) both dropped the most in two weeks. China Life Insurance Co. (LFC:US) slid 3.8 percent, while Semiconductor Manufacturing International Corp. traded at the widest discount to its Hong Kong stock in a week.
China, which tightened restrictions on the property market March 1, told banks yesterday to limit investments of client money in debt that isn’t publicly traded to 35 percent of funds raised from the sale of wealth-management products in a bid to cut violations of lending limits. The products may have climbed to 13 trillion yuan ($2.1 trillion) at the end of 2012, from 8.5 trillion yuan in 2011, according to Fitch Ratings.
“These funding curbs may be more important than previous curbs on the property sector, if the money really isn’t available that’s when demand starts to fall apart,” Michael Shaoul, the chairman of Marketfield Asset Management LLC, which oversees more than $6 billion, said by phone in New York. “At some point in 2013 we’ll exceed the lows of 2012,” he said, referring to Chinese stock indexes.
The iShares FTSE China 25 Index Fund (FXI:US), the largest Chinese exchange-traded fund (FXI:US) in the U.S., slipped 1.1 percent to $36.93 in New York, bringing its decline over the past three months to 8.7 percent, the biggest slump in six quarters. The Standard & Poor’s 500 Index (SPX) added 0.4 percent to 1,569.19, boosting its 2013 jump to 10 percent. U.S. markets are closed for a holiday today.
E-House, based in Beijing, plunged 3.5 percent to $4.65 in New York, the steepest one-day slump since March 13. SouFun, also based in Beijing, slid 3 percent to $26.21, extending its monthly loss to 2.4 percent. E-House gained 13 percent this quarter, while SouFun added 4.8 percent.
The curbs on banks will hurt not only the real estate sector, which is partly financed by lending through wealth- management products, but also the wider economy, according to Marketfield’s Shaoul. China’s economy emerged from a seven- quarter slowdown in the last three months of 2012, when gross domestic product rose 7.9 percent.
“The whole Chinese economy has become much more credit driven over the last 18 months or so,” Shaoul said. “The real estate sector has become a big part of the Chinese economy. If the authorities really start to constrain liquidity in the one strong part the economy, overall you’re going to see some real pressure.”
China Life, the country’s biggest insurer, sank 3.8 percent to $39.42 in New York yesterday, the lowest close since July 12. The company’s American depositary receipts have lost 21 percent this year.
Beijing-based China Life said yesterday that 2012 net income declined 40 percent to 11.06 billion yuan ($1.8 billion) from a year earlier. Impairment losses from equity investments jumped 140 percent to 31.1 billion yuan last year, the company said in a statement.
China Life’s smaller competitor Ping An Insurance (Group) Co. reported a 3 percent jump in profit last month as higher banking revenue helped offset a jump in investment losses. China Pacific Insurance (Group) Co. reported a 39 percent drop in profit for last year March 24 as investment losses more than doubled.
Semiconductor Manufacturing (981), a chip foundry known as SMIC, tumbled 4.3 percent to $2.92 in U.S. trading, sliding the most since Feb. 19. The company’s ADRs, each representing 50 underlying shares in the Shanghai-based foundry, traded 1.4 percent below the Hong Kong-traded stock, the biggest discount in five days.
SMIC’s second-quarter outlook “looks like a soft spot with sales looking flat to slightly up off a strong first quarter,” Credit Suisse Group AG analysts wrote in a report dated March 26. The ADRs have climbed 15 percent this quarter.
China Southern Airlines Co. (ZNH:US), Asia’s biggest carrier by passenger numbers, climbed 3.1 percent to a three-week high of $28.64 in New York. The ADRs are up 11 percent in 2013.
At least three analysts reiterated ratings equivalent to buy after the Guangzhou-based company said March 26 that it expects domestic demand to rebound in 2013 as China’s growth may accelerate under the nation’s new leaders. The carrier’s 2012 net income was 2.62 billion yuan ($420 million), lower than the previous year and trailing the average of nine analysts’ estimates compiled by Bloomberg for 2.78 billion yuan.
Hong Kong’s Hang Seng China Enterprises Index dropped 1.3 percent to 10,896.22 yesterday, retreating from a two-week high. The Shanghai Composite Index (SHCOMP) of domestic Chinese shares tumbled 2.8 percent to 2,236.30 yesterday, the lowest level in three months. The gauge has lost 1.5 percent this year, while the Hang Seng is down 4.7 percent.
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