China's Stocks Fall, Capping Biggest Weekly Loss Since July; Banks Decline

China stocks fell, capping the benchmark index’s biggest weekly loss since July, as speculation regulators will raise borrowing costs overshadowed gains by brewers on prospects of higher sales during upcoming holidays.

Agricultural Bank of China Ltd. slid 1.1 percent after the Securities Daily said the central bank may increase interest rates. Citic Securities Co. paced losses by brokerages after Deutsche Bank AG said the likelihood of a stock rally this year has diminished. Tsingtao Brewery Co. and Chongqing Brewery Co. climbed more than 5 percent ahead of Mid-Autumn Day and National Day holidays. North China Pharmaceutical Co. surged 7.7 percent as investors sought companies shielded from a slowing economy.

“With the threat of inflation still there, it’s just matter of time before interest rates are raised,” said Yan Ji, who helps oversee about $1.5 billion at HSBC Jintrust in Shanghai. “Investors are looking for safe havens with solid earnings growth prospects amid the economic uncertainty.”

The Shanghai Composite Index lost 3.78, or 0.2 percent, to 2,598.69 at the 3 p.m. close, after swinging between gains and losses more than 10 times. The gauge declined 2.4 percent this week, the most in more than two months, amid concern government measures to curb lending and energy consumption will slow economic and earnings growth. The CSI 300 Index added 0.1 percent to 2,861.37 today.

The People’s Bank of China may raise interest rates after consumer prices advanced, the Securities Daily reported today, citing an unidentified person familiar with the situation.

Banks Decline

AgriBank, the nation’s third-largest by assets, fell 1.1 percent to 2.60 yuan, the lowest since it began trading in Shanghai on July 15. Industrial & Commercial Bank of China Ltd., the biggest, lost 0.3 percent to 3.96 yuan, a fourth day of declines.

China’s economic expansion will likely decrease to 7 percent annually in the next 10 years compared with 10 percent in the past decade, Deutsche Bank AG analysts led by Jun Ma wrote in a report dated yesterday.

Citic Securities, China’s biggest listed brokerage, fell 1 percent to 11.13 yuan. Haitong Securities Co. retreated 1 percent to 9.04 yuan. Everbright Securities Co. slid 2.3 percent to 14.70 yuan.

The probability of an end-year China stocks rally driven by policy easing has diminished as the government increasingly accepts lower growth, according to Deutsche Bank.

China also plans to conduct an investigation into some local securities brokerages for irregularities in their operations, including the use of low commission to attract new customers, the China Securities Journal said today, citing an unidentified person. The checks will be carried out by the Securities Association of China and local securities brokerages found to be flouting rules may have their licenses revoked, it said.

Volatile Trading

China’s stocks will remain volatile in the coming months because of the monetary policy outlook and U.S.-China trade tensions, former Morgan Stanley economist Andy Xie said in an interview in Shanghai today.

The Shanghai index has rebounded 9.9 percent from this year’s low on July 5 on signs the nation’s economic slowdown is stabilizing. The measure plunged 27 percent in the first half after last year’s 80 percent surge as the government imposed tightening measures ranging from restrictions on multi house purchases to a 7.5 trillion yuan ($1.1 trillion) annual limit on new lending by banks.

An index tracking consumer staples producers climbed 2.1 percent, the most this month and the second-biggest advance among the CSI 300’s 10 industry groups.

Brewers Gain

Tsingtao Brewery, China’s second-biggest brewery by volume, gained 5.5 percent to 38.04 yuan, the steepest advance since Nov. 4. Chongqing Brewery jumped 9 percent to a record 49.23 yuan. Kweichow Moutai Co., China’s biggest producer of baijiu liquor by market value, rose 1.6 percent to 161.81 yuan.

Chinese financial markets will be closed from Sept. 22 to Sept. 24 for the mid-Autumn festival and from Oct. 1 to Oct. 7 for National Day holidays.

The National Development and Reform Commission urged increased scrutiny of prices for food, transportation and tourism during the holidays, so as to manage inflation expectations, the nation’s top economic planning body said earlier this month.

Jing Ulrich, JPMorgan Chase & Co.’s chairwoman for China equities and commodities, said in a Bloomberg Television interview today that consumer and health-care stocks will benefit most as the Chinese government rebalances the economy away from exports toward consumption.

Drugmakers Rally

A gauge of health-care companies climbed 2.3 percent. North China Pharmaceutical gained 7.7 percent to 12.21 yuan, the highest since June 2. Kangmei Pharmaceutical Co. jumped 5.7 percent to a record 17.94 yuan.

Huaneng Power International Inc. paced gains by power producers after saying its parent will inject energy assets into the company and as BNP Paribas said China may raise on-grid power tariffs next month.

Huaneng Power, the listed unit of China’s largest power group, advanced 5 percent to 6.35 yuan, the most since June 30. The parent will inject energy assets in Shandong and other provinces into the company within five years, without giving further details, Huaneng said yesterday.

Huadian Power International Corp., the listed unit of China’s fourth-largest power producer, added 3.4 percent to 3.97 yuan. Guangdong Electric Power Development Co. rose 0.7 percent to 6.82 yuan.

China may boost on-grid power tariffs in Hebei, Henan, Shandong, Shanxi, Shaanxi, Anhui, Qinghai, Gansu and Hainan provinces by four to five percent in October, Daisy Zhang, Shanghai-based analyst at BNP, said in a report today.

--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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