China’s stocks slumped the most in almost seven weeks after a top-level Communist Party meeting disappointed investors looking for details on policy shifts to combat a slowdown in the world’s second-largest economy.
China Petroleum & Chemical Corp. (386) and coal producer China Shenhua Energy Co. led declines for energy producers. Ping An Bank Co. and China Minsheng Banking Corp. slid more than 4 percent. Aerosun Corp. (600501) and Beijing Aerospace Changfeng Co. both jumped 10 percent after the government said it will create a committee to better coordinate national security issues.
The Shanghai Composite Index (SHCOMP) dropped 1.8 percent to 2,087.94 at the close, the biggest decline since Sept. 26. The Hang Seng China Enterprises Index (HSCEI) of Hong Kong-traded Chinese shares slid 2.7 percent. China elevated the role of markets in the nation’s economic strategy while stopping short of unveiling detailed policy shifts, after President Xi Jinping oversaw a gathering of Communist Party leaders in Beijing.
“There’s nothing that has exceeded expectations,” said Wu Kan, a Shanghai-based money manager at Dragon Life Insurance Co., which oversees $3.3 billion. “The market will probably continue to correct going forward.”
The CSI 300 Index lost 2.2 percent to 2,288.12. The Bloomberg China-US Equity Index fell 0.6 percent yesterday. The Shanghai Composite has dropped 14 percent from this year’s high set on Feb. 6 amid concern economic growth will slow in the fourth quarter. The measure trades at 8.3 times projected profit for the next 12 months, compared with the seven-year average of 15.3, according to data compiled by Bloomberg.
The communique, published by the official Xinhua News Agency yesterday, reiterated the role of state ownership while saying development of the non-public sector will be “encouraged.” Reform of state-owned enterprises is the “biggest disappointment,” Wang Tao, an economist at UBS AG, wrote in a report dated yesterday. “SOE reform seems to have not been considered a priority by the plenum. The communique used the same wording as ten years earlier.”
The document didn’t discuss specific issues such as regional borrowing, interest rates or the one-child policy, while referring generally to giving farmers more property rights. More details on decisions from the plenum will probably be released within a week after the meeting, Macquarie Capital Securities Ltd. said in a report Nov. 11.
Goldman Sachs Group Inc. said the plenum’s results were “insufficient” to drive Chinese stocks higher, while Bocom International Holdings Co.’s strategist Hao Hong advised investors in a report to “brace themselves for global sell-offs in the coming days.”
Energy and financial shares were the biggest drags in the Shanghai Composite, with these stocks accounting for the 10 biggest losses by points, according to data compiled by Bloomberg. Energy producers, financial companies and industrial companies account for 76 percent of the index, data showed.
China Petroleum & Chemical, known as Sinopec, lost 1.7 percent to 4.68 yuan. PetroChina (601857) Co. decreased 1.5 percent to 7.65 yuan. China uses its biggest oil companies, of which PetroChina is the largest, to control domestic fuel prices and secure energy supplies from overseas to meet the burgeoning needs of the economy. China Shenhua Energy, the largest coal producer, retreated 1.1 percent to 15.97 yuan.
Ping An Bank retreated 5.1 percent to 13.33 yuan. Minsheng Banking dropped 4.4 percent to 8.55 yuan. China Merchants Bank Co. (600036) fell 3.3 percent to 10.33 yuan.
“The market may be disappointed at the lack of words on financial reforms, as the only area it appeared was ’improving financial markets’,” said UBS’ Wang. The language could mean the development of capital markets including the bond market as well as interest-rate liberalization and capital-account opening, she wrote.
China’s 10-year bonds fell, pushing the yield to the highest level since 2008. The yield on the 4.08 percent government bonds due August 2023 increased four basis points to 4.49 percent as of 3:30 p.m. in Shanghai, according to data from the Interbank Funding Center.
Aerosun surged by the daily limit to 8.47 yuan and Beijing Aerospace Changfeng jumped 10 percent to 11.89 yuan. Defense stocks will get a “positive response” due to their “unexpected inclusion” in the communique, Goldman Sachs analysts including Helen Zhu said in a report today. The Communist Party said the country would set up a state committee to better coordinate security issues as it expands its military reach and faces growing dissent at home.
Shanghai Xinhua Media Co. (600825) gained 5 percent to 8.59 yuan. Jiangsu Phoenix Publishing & Media Corp. increased 3 percent to 10.58 yuan. Media-related companies should benefit after the communique mentioned promoting a “modern culture market,” Bank of America Corp. (BAC:US) analysts including David Cui said in a report.
“We believe land reform, free trade zones, national security, and state-owned enterprises may become long-lasting investment themes,” UBS AG (UBSN) strategist Chen Li, wrote in a report dated today. “Household registration reform, population policy, and financial reform remain to be seen, and may have a short-term negative impact on related thematic investment in terms of sentiment.”
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