China Stocks Drop to Lowest Level in 2 Years

By Bloomberg News - Oct 10, 2011 12:20 PM GMT+0700
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The Shanghai Composite Index slipped 0.6 percent to 2,346.23 at 10:25 a.m. local time, the lowest since March 25, 2009. Photographer: Qilai Shen/Bloomberg

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Oct. 10 (Bloomberg) -- Fred Hu, chairman of Primavera Capital Group in Beijing and former Greater China chairman at Goldman Sachs Group Inc., talks about the outlook for China's economy and central bank monetary policy. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

China’s stocks fell, driving the benchmark index to the lowest level since April 2009, as housing sales slumped during a week-long holiday and energy producers declined after the government cut fuel prices.

Industrial & Commercial Bank of China (601398) Ltd. and China Vanke Co. led financial companies lower after Shanghai Securities News reported high inflation signals tight monetary policies will remain in place. PetroChina Co., the country’s biggest oil producer, dropped 0.7 percent as the first reduction in fuel prices this year spurred concerns about earnings.

“Tight liquidity has hurt some small companies with anything related to monetary policy dragging banks and the market lower,” said Tu Jun, a strategist at Shanghai Securities Co. “Market sentiment is very weak at the moment and investors are more sensitive to bad news than good.”

The Shanghai Composite Index slipped 0.2 percent to 2,354.95 at 1:12 p.m. local time, the lowest since April 8, 2009. The CSI 300 Index (SHSZ300) lost 0.3 percent to 2,574.42. Declines for benchmark measures were limited as copper and coal producers advanced. China’s markets were shut last week for the National Day holiday.

The Shanghai Composite sank 15 percent last quarter, the biggest loss since the three months to June 2010. The index has tumbled 16 percent this year as the government raised interest rates and reserve-requirement ratios for banks to cool inflation that’s at the highest level in almost three years. The stock measure is valued at 10.9 times estimated profit, the lowest level on record, according to weekly data compiled by Bloomberg.

Prudent Policy

China’s central bank has reiterated stabilizing overall price levels remains a top priority of macro-economic policy, Shanghai Securities News reported today, citing information from a People’s Bank of China’s meeting of its monetary policy committee.

Central bank adviser Zhou Qiren said the country should keep a prudent monetary policy because small companies will have a better development environment only if inflation is thoroughly curbed, the Beijing Morning Post reported today.

ICBC, the nation’s biggest bank, lost 0.3 percent to 3.97 yuan. Agricultural Bank of China Ltd. (601288) retreated 0.8 percent to 2.44 yuan. Shenzhen Development Bank Co. (000001) declined 2.7 percent to 15.60 yuan.

China’s home prices will gradually ease because of rising inventories and a slump in property market transactions, the official Xinhua News Agency reported yesterday.

The housing market slumped during the holiday, typically a strong period for housing sales, Xinhua reported. Official statistics showed 1,039 housing units were sold in Beijing during the holiday, 23 percent fewer than during the same period last year, the report said.

China Vanke, the nation’s largest developer, slid 2.4 percent to 7.07 yuan. Poly Real Estate Group Co., the second- biggest, fell 1.8 percent to 9.08 yuan.

Wenzhou Concern

Developers may wrongly think Premier Wen Jiabao’s recent trip to Wenzhou city is sign of loosening for sector, Credit Suisse Group AG analysts led by Jinsong Du wrote in note, citing discussions with government officials.

The closures of small- and medium-sized enterprises in Wenzhou is a regional issue and will not threaten the stability of China’s banking system, Sing Tao Daily reported Oct. 8, citing He Guangbei, chief executive officer of BOC Hong Kong (Holdings) Ltd. The liquidity problem facing smaller companies in Wenzhou is not widespread in China, the paper said. Wenzhou is in Zhejiang province near Shanghai.

PetroChina slid 0.7 percent to 9.80 yuan. Ex-factory gasoline and diesel prices were both reduced by 300 yuan ($47.20) a metric ton, effective yesterday, the National Development and Reform Commission, the nation’s top economic planner, said. That represents a 3.5 percent drop for gasoline and 3.9 percent for diesel.

Europe Outlook

Jiangxi Copper Co., China’s biggest producer of the metal, advanced 0.9 percent to 26.93 yuan. Yunnan Copper Industry Co. added 1.4 percent to 17.89 yuan.

German Chancellor Angela Merkel said European leaders will do “everything necessary” to ensure that banks have adequate capital.

Merkel joined French President Nicolas Sarkozy to persuade investors they can stamp out the debt crisis roiling global markets. At a joint press conference in Berlin, Sarkozy set a Nov. 3 deadline for a response that addresses the immediate crisis in Greece and what he called the structural defects in the 17-nation euro area.

China Shenhua Energy Co., the listed unit of China’s biggest coal producer, increased 0.4 percent to 25.44 yuan. Yanzhou Coal Mining Co. added 1.5 percent to 29.51 yuan. Coal for generating power rose at China’s Qinhuangdao port as inventories plunged to the lowest level in two years as utilities bought more before winter.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Shiyin Chen at schen37@bloomberg.net