China's Stocks Fall on Higher Interest Rate Concerns; Banks, Brokers Drop
China’s stock index fell for a second day, narrowing this week’s gains, as banks and brokerages dropped on concern quickening inflation may push policy makers to boost interest rates further.
Industrial & Commercial Bank of China Ltd. led a gauge of financial stocks lower for a second day after data showed the fastest inflation in 23 months. Citic Securities Co. dropped for the biggest two-day loss in four months on concern this month’s gains were excessive. Datong Coal Industry Co. paced advances among coal producers on speculation cold weather will spur fuel demand. GD Midea Holding Co. gained 3.3 percent as rival Gree Electric Appliances Inc.’s higher profit bolstered its outlook.
“The market could be volatile in the short term after a big rally this month,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “Investors may come to realize that inflation is still a major threat and asset markets will be under scrutiny by the central bank as well.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 8.49, or 0.3 percent, to 2,975.04 at the 3 p.m. close. It added 0.1 percent this week, the fourth-straight gain. The CSI 300 Index rose 0.1 percent to 3,378.66.
The Shanghai gauge has jumped 12 percent this month and 26 percent from its 2010 low on July 5 after lagging behind rallies in other emerging markets and as a rising yuan lured capital inflows. Still, it’s down 9.2 percent this year after the government tightened measures for property speculations and cut the annual new lending quota by 22 percent.
Rate Outlook
China’s consumer prices rose 3.6 percent last month, the statistics bureau said at a briefing yesterday in Beijing. The government has a full-year inflation target of 3 percent. The inflation data spurred concern that more rate increases may be coming after the central bank on Oct. 19 raised borrowing costs for the first time since 2007 to avert asset bubbles.
Eight of 12 economists surveyed by Bloomberg said the benchmark one-year lending rate, used to set a minimum cost for loans in the world’s fastest-growing major economy, will jump at least half a percentage point by the end of 2011. Nomura International Ltd. had the most aggressive estimate, predicting a one percentage point increase for next year.
“The risk is inflation will remain an issue and that’s why next year we have four more rate hikes” as our forecast, Robert Subbaraman, chief economist for Asia excluding Japan at Nomura, said in an interview yesterday in Hong Kong. “Administrative measures are starting to lose their effectiveness.”
Cold Wave
A gauge of financial stocks dropped 0.9 percent today, the most among the 10 industry groups of the CSI 300. It slid 2.4 percent yesterday to end an 11-day winning streak.
ICBC, the nation’s biggest listed lender, lost 0.7 percent to 4.48 yuan. Agricultural Bank of China Ltd., the third largest, retreated 1.1 percent to 2.81 yuan. Bank of China Ltd., the fourth largest, slid 1.4 percent to 3.50 yuan.
Citic Securities, China’s biggest listed brokerage, fell 2.8 percent to 15.04 yuan after sliding 3.2 percent yesterday. The stock had its biggest two-day decline since June 30 after soaring 34 percent this month on speculation rising stock-market transactions volumes will boost earnings.
Datong Coal, China’s third-largest coal company by capacity, jumped 3.8 percent to 25.81 yuan. China Coal Energy Co., the second largest, gained 1.5 percent to 12.82 yuan.
A cold wave will lower temperatures by as much as 16 degrees centigrade through the weekend in China’s northern and southeastern regions, the National Meteorological Center said yesterday. The spell of cold weather may persist until Oct. 26, according to the center.
Midea, Gree
The Bohai-Rim Steam-Coal Price Index, or BSPI, climbed 1.4 percent to 735 yuan ($110.4) a metric ton as of Oct. 20 from a week earlier, according to the Qinhuangdao Seaborne Coal Market website.
Midea, China’s second-biggest publicly traded appliance maker, advanced 3.3 percent to 18.60 yuan. Qingdao Haier Co., the air-conditioner and refrigerator unit of China’s biggest appliance maker, climbed 5.5 percent to 27.03 yuan. Gree, China’s largest maker of home air-conditioners, yesterday reported a 73 percent increase in third-quarter earnings. The stock was suspended today for a shareholders meeting.
Wuliangye Yibin Co., the second-biggest maker of white liquor by market value, added 0.6 percent to 36 yuan after saying third-quarter profit rose 63 percent from a year earlier.
Ping An Insurance (Group) Co. fell 1 percent to 64.99 yuan. The nation’s second-biggest insurer is diversifying into property and private equity and increasing its holdings in stocks to boost investment performance after its worst year since 2005, Timothy Chan, deputy chief investment officer of and chairman of its asset management units, said in an interview yesterday.
He favors insurers and banks, based on valuations, and said machinery makers for industries related to environmental protection will benefit as China reforms its economy to reduce its reliance on fixed-asset investment and export-driven growth.
--Zhang Shidong. Editors: Allen Wan, Richard Frost
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-3040 or szhang5@bloomberg.net
To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net
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