Shanghai Composite Falls, Trimming Weekly Gain; Poly Real Estate Declines

China’s benchmark stock index fell, paring a weekly gain, on concern government tightening measures including possibly a property tax and European nations’ debt- cutting will hurt global economic growth.

Jiangxi Copper Co., the nation’s biggest producer of the metal, lost 1.2 percent and PetroChina Co. slipped 0.7 percent after raw material prices dropped. Poly Real Estate Group Co. led declines among developers on speculation the government may impose a tax on residential properties. Kangmei Pharmaceutical Co. paced gains among drugmakers after the government said it will support private investment in the health-care industry.

“Forecasts for corporate earnings growth are likely to be revised downwards because of the debt crisis. We should still be cautious about equities,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million.

The Shanghai Composite Index retreated 13.9, or 0.5 percent, to 2,696.63. The gauge advanced 0.3 percent this week, the first weekly gain in six. The CSI 300 Index declined 0.7 percent to 2,868.02. Futures on the May CSI 300 contract, the most active, fell 1.4 percent.

The Shanghai Composite has plunged 18 percent this year, the world’s fourth-worst performer among the 93 gauges tracked by Bloomberg, on concern the government will add to three increases in banks’ rate reserve requirements and higher housing downpayments with possibly rising interest rates to combat inflation and avert asset bubbles. The index on May 11 entered a bear market after falling 21 percent from its Nov. 23 high.

Caution

Premier Wen Jiabao struck a cautious note about the world economy, saying the sovereign-debt crisis in some countries is “deepening” and the foundations of a global recovery are not yet “solid.”

“We should never underestimate the gravity and complexity of this crisis and its far-reaching impact on the world political and economic landscape,” Wen said at a biannual China-Arab ministerial meeting in the Chinese city of Tianjin.

Asian companies such as Taiwan’s Asustek Computer Inc. plunged today on concern the Europe crisis may hurt earnings. Shipments of computers to Europe may be cut because a falling euro reduces the Taiwan dollar value of its sales, Asustek Chief Executive Officer Jerry Shen said.

Commodities Slide

Jiangxi Copper fell 1.2 percent to 30.63 yuan. PetroChina, the nation’s biggest oil producer, retreated 0.7 percent to 11.14 yuan. Aluminum Corp. of China Ltd., the nation’s biggest maker of the lightweight metal, lost 0.8 percent to 10.61 yuan.

Copper for three-month delivery lost 0.7 percent to $7,110 per metric ton in London today, aluminum declined 0.5 percent to $2,160 per ton and zinc fell 0.4 percent to $2,151 per ton.

Crude oil for June delivery dropped as much as 0.8 percent to $73.98 a barrel in after-hours trading in New York, extending a 1.7 percent decline yesterday.

Poly Real Estate, China’s second-largest developer by market value, dropped 1.7 percent to 10.90 yuan. Gemdale Corp., the fourth largest, retreated 2.1 percent to 6.11 yuan.

China’s tax bureau may announce by May 20 the expansion of its property tax on commercial-use properties to residences, the 21st Century Business Herald reported on its Web site yesterday, citing an unidentified person.

UBS AG analyst Haiyun Zhang said in a note to clients that he expects the government to tighten liquidity for the remainder of the year and estimates average selling prices of properties in “tier-1” cities will fall 25 percent by the end of 2010.

Property Outlook

‘If the downturn persists, the financials of some developers could become stretched,” the analyst wrote in a note, citing Poly Real Estate as one of the companies.

Ping An Insurance (Group) Co., China’s second-biggest insurer, lost 2.2 percent to 48.30 yuan. Shareholder Newbridge Capital LLC, the Asian unit of the U.S. buyout firm TPG Capital, raised HK$9.7 billion ($1.25 billion) selling Hong Kong-listed shares in the insurer, a person familiar with the matter said.

Foreign direct investment rose 24.7 percent from a year earlier to $7.35 billion in April, a ninth month of increase, the commerce ministry said. That compares with the 21 percent median forecast of six economists surveyed by Bloomberg News.

The CSI 300 health-care index gained 2.1 percent. Kangmei rose 3.1 percent to 14.33 yuan while Tianjin Tasly Pharmaceutical Co. gained 4.5 percent to 31 yuan. Beijing Tongrentang Co. added 2.4 percent to 28.32 yuan.

China will encourage private investors to set up hospitals, community health services and take part in restructuring of public hospitals, the State Council said in a statement.

“The government support measures add to certainty that pharmaceutical stocks will have industry-wide solid growth,” said Dazhong’s Wu.

Mobius

Chinese stocks are becoming more attractive after initial share sales and derivative trading pushed the benchmark index to a bear market, investor Mark Mobius said.

Buying opportunities are “getting more and more now with the market going down,” Mobius, who oversees about $34 billion in emerging-market assets as executive chairman of Templeton Asset Management Ltd., said yesterday in an interview in Seoul. While initial public offerings “draw money out of the market and depress prices, it doesn’t mean that the company or economy is not fundamentally sound.”

Chinese companies raised $23.5 billion this year through yesterday, about $4 billion less than the total for last year. Futures, or agreements to buy or sell the CSI 300 Index at a preset value, began trading on the China Financial Futures Exchange in Shanghai on April 16, while margin trading and short selling was introduced March 31.

China’s stocks gained this week on speculation this year’s bear market declines have been excessive given the earnings outlook. Concerns about a crackdown in the property market and negative interest rates may spur buying in stocks, according to investors such as Robeco Group and JPMorgan Chase & Co.

--Zhang Shidong. Editors: Richard Frost, Allen Wan

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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