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China's Stocks Decline on Property Tightening, Bank Profitability Concerns
China’s stocks fell, dragging the benchmark index from a four-month high, as speculation the government will step up property curbs overshadowed gains by metals producers on the prospects output curbs will boost prices.
China Vanke Co. dropped the most in two weeks after the 21st Century Business Herald said measures may include stopping loans to developers. Industrial Bank Co., part-owned by a unit of HSBC Holdings Plc, and China Merchants Bank Co. slid at least 2 percent. Aluminum Corp. of China Ltd. gained 2.2 percent as China International Capital Corp. said China’s plan to cut energy usage may boost aluminum makers on likely production cuts.
“The first round of tightening hasn’t met the government’s objective of bringing down property prices,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The current pickup in the property market has led to speculation that there will be more severe measures including a property tax.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, lost 3.07, or 0.1 percent, to 2,695.29 at the 3 p.m. close, falling from the highest since May 12. The CSI 300 Index retreated 0.1 percent to 2,980.97.
The Shanghai measure plunged 27 percent in the first half of the year as the government increased down-payment requirements on home sales and ordered banks to set aside more deposits as reserves to curb surging property prices. The gauge has rebounded 14 percent from this year’s low on July 5, paring this year’s loss to 18 percent, as investors speculated the government would ease lending curbs to spur growth.
Developers, Banks
A gauge of financial and property stocks in the CSI 300 slid 1.7 percent, the biggest drop among the 10 industry groups.
Vanke, the nation’s biggest listed property developer, tumbled 2.4 percent to 8.57 yuan, the most since Aug. 25. Poly Real Estate Group Co., the second largest, retreated 2.8 percent to 11.80 yuan. Gemdale Corp., the four largest, lost 2 percent to 6.52 yuan.
“The key drivers of the property bubble are excess liquidity and lack of investment alternatives, which are still largely in place,” said Ken Peng, a Beijing-based economist for Citigroup.
Extra tightening measures may include restrictions on pre- sales of apartments and curbs on the discounts banks can offer on mortgages, according to Citigroup’s Peng.
The 21st Century Business Herald said the new measures may include stopping loans to real estate developers, compulsory lowering of home prices and a ban on third-home purchases. The report cited an unidentified person close to the Ministry of Housing and Urban-Rural Development.
Housing Sales
Housing transactions in the southern city of Shenzhen jumped 84 percent in August from July, according to real-estate data provider Soufun Holdings Ltd. Sales rose 56 percent in Guangzhou, 31 percent in Shanghai and 23 percent in Beijing, it said. Government real-estate market data is scheduled for release as soon as Sept. 10.
Industrial Bank dropped 3.6 percent to 25.31 yuan. Merchants Bank fell 2 percent to 13.56 yuan. Huaxia Bank Co., partly owned by Deutsche Bank AG, lost 1.2 percent to 11.41 yuan.
Reports that Chinese regulators will force lenders to boost loan-loss reserves are negative for mid-sized banks, Morgan Stanley said.
China’s banking regulator is drafting a plan requiring banks to maintain loan-loss reserves equivalent to 2.5 percent of total lending, according to Guosen Securities Co. The regulation may go into effect next year, Qiu Zhicheng, an analyst at Guosen Securities, wrote in a note to clients yesterday, citing an unidentified China Banking Regulatory Commission official speaking at a financial conference hosted by the securities firm.
Chalco Gains
A gauge tracking materials producers rallied 2.3 percent to the highest level since April 26.
Aluminum Corp. of China, the listed unit of nation’s biggest maker of the lightweight metal and also known as Chalco, gained 2.2 percent to 10.70 yuan. Jiangxi Copper Co., China’s biggest producer of the metal, advanced 7.1 percent to 34.39 yuan, the most since July 20. Minmetals Development Co., a steel trader, jumped the 10 percent daily limit, to 20.12 yuan, the most since May 27.
The government’s plan to cut energy consumption may benefit aluminum makers as the government is likely to limit production to meet energy-saving goals, China International Capital said. Restrictions on aluminum production will support prices of the light metal amid the economic slowdown, analyst Zhang Fusheng wrote in a report today.
China’s steel and cement product prices will remain sustainable at above current levels on further production cuts in the fourth quarter, Goldman Sachs Group Inc. said.
--Zhang Shidong. Editors: Allen Wan, Richard Frost
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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