China's Stocks Fall Most in Two Weeks; Ping An Leads Decline

By Chua Kong Ho

July 15 (Bloomberg) -- China's stocks fell the most in two weeks, led by banks and insurers, on concern they are holding debt issued by Fannie Mae and Freddie Mac, the two U.S. mortgage- finance companies that lost half their market value last week on concern about their ability to refinance.

Ping An Insurance (Group) Co. and Shanghai Pudong Development Bank Co. led declines, tracking losses by financial shares globally. U.S. financial stocks slumped yesterday after initially rallying on the Treasury Department's bailout plan for Fannie Mae and Freddie Mac. Asian banks declined after Taiwan's Cathay Financial Holding Co. said it held more than $6 billion in debt issued by the two U.S. companies and the Nikkei reported the three-largest Japanese banks held $44 billion.

``Freddie and Fannie are basically quasi-sovereigns and many Asian governments and banks hold their debt,'' said Leslie Phang, the Singapore-based head of investments at the private-clients unit of Schroders Plc, which oversees about $260 billion globally. ``Nobody expected them to blow up and it's shaken the foundations. The question is not whether you're holding them, it's a matter of how much.''

The CSI 300 Index, which tracks stocks on both the Shanghai and Shenzhen exchanges, lost 89.22, of 3 percent, to 2,886.66 at the 11:30 a.m. local-time break, the most since July 1. All 10 industry groups declined, with financial shares contributing the most to the retreat.

Fannie Mae and Freddie Mac, the two U.S. government-backed mortgage-finance companies, lost about half of their market value last week on concerns about their ability to refinance debt. U.S. Treasury Secretary Henry Paulson has asked Congress for authority to buy unlimited stakes in the two companies that buy or finance almost half the $12 trillion of U.S. mortgages, and provide loans to them.

Banks Slide

Ping An, the nation's second-largest insurer, lost 4.9 percent to 41.09 yuan, while rival China Life Insurance Co. dropped 5.6 percent to 23.93 yuan. Shanghai Pudong, part-owned by Citigroup Inc., declined 6.2 percent to 22.05 yuan.

Industrial & Commercial Bank of China Ltd., the country's largest, retreated 2.2 percent to 4.94 yuan. The bank's spokesman said he couldn't immediately comment when reached by Bloomberg News.

China Construction Bank Corp. declined 2.6 percent, while Bank of China Ltd. slid 2.4 percent.

Citic Securities Co., the nation's biggest brokerage, dropped 4.3 percent to 23.42 yuan, after its competitor Guoyuan Securities Co. joined Hong Yuan Securities Co. in posting a plunge in first-half profit. Beijing-based Guoyuan slumped 5.1 percent to 16.78 yuan.

The benchmark CSI 300 Index has slumped 51 percent from its Oct. 16 record. The value of securities transactions in June was 62 percent lower compared to a year earlier. A measure of financial stocks contributed to more than half of the index's decline today.

The Shanghai Composite Index, a measure of shares traded in the city, lost 2.5 percent to 2,805.92. The Shenzhen Composite Index dropped 2.1 percent.

The following shares also rose or fell in China. Stock symbols are in parentheses after company names.

Chongqing Iron & Steel Co. (601005 CH), a steelmaker, gained 4.1 percent to 5.63 yuan, after saying first-half profit will rise more than 60 percent.

Shandong Gold Mining Co. (600547 CH), the third-largest Chinese bullion producer, added 3.4 percent to 66.48 yuan. First- half profit probably jumped more than fivefold because of higher output and lower costs, it said.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at Kchua6@bloomberg.net