China's Stocks Drop on Tightening Concern; ICBC, China Vanke Lead Decline

Chinese stocks fell for the first time in three days, dragging the benchmark index to its third straight weekly loss, amid speculation the government will step up policies to curb inflation.

Industrial & Commercial Bank of China Ltd. and China Vanke Co. paced declines among banks and developers after the Shanghai Securities News said the government may cut the target for new lending next year. Jiangxi Copper Co. dropped 2.7 percent after the Shanghai Futures Exchange took steps to limit speculation on metals contracts. Liquor maker Kweichow Moutai Co. led producers of consumer staples higher amid speculation their earnings will weather tightening measures.

“Investors are awaiting the government to set a tone for next year’s economic policies, such as new lending and economic growth targets,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “Large- capitalization cyclical stocks wouldn’t perform too well until there’s more clarity. At this moment, buying consumer and medical shares is a good defensive strategy.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, fell 26.56, or 0.9 percent, to 2,871.70 at the 3 p.m. close. It slid 0.6 percent this week. The CSI 300 Index dropped 0.9 percent to 3,194.85.

The Shanghai gauge lost 8.3 percent as of yesterday since reaching an almost seven-month high on Nov. 8 on concern that accelerated monetary tightening will crimp economic growth. The central bank last week ordered banks to set aside larger reserves for the second time in two weeks after raising interest rates in October, the first increase since 2007.

Loan Target

Stocks in most of Asia’s markets fell today after North Korea said it’s “greatly enraged at the provocation” from South Korea and warned that any “escalated confrontation” will lead to war, according to state news agency KCNA. It fired artillery shells on the South’s Yeonpyeong island on Nov. 23, killing four people and wounding 20.

A gauge of financial stocks in the CSI 300 dropped 1.4 percent today. ICBC, the nation’s biggest listed lender, fell 1.6 percent to 4.32 yuan. Construction Bank, the second largest, lost 1.5 percent to 4.68 yuan. Vanke, the nation’s biggest listed property developer, dropped 2 percent to 8.23 yuan. Poly Real Estate Group Co., the second biggest, slid 3.1 percent to 12.47 yuan.

The target for new loans next year will likely be close to 7 trillion yuan ($1.05 trillion), less than this year’s 7.5 trillion yuan, Shanghai Securities News reported, citing an unidentified person.

‘Policy Tightening’

“The market is still rife with concerns about policy tightening,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “The central bank had made it clear that it will use price tools to manage inflation expectations. That means another interest rate increase will come soon.”

The National Development and Reform Commission, the nation’s top planning body, urged local governments to be careful about introducing price increases, according to a statement on the commission’s website yesterday.

Chinese policy makers have been stepping up measures in recent weeks to curb inflation that reached 4.4 percent last month, the fastest pace in two years. Analysts at nine banks surveyed by Bloomberg News last week predicted the PBOC will boost borrowing costs for a second time by year-end.

Jiangxi Copper, the nation’s biggest producer of the metal, dropped 2.7 percent to 34.98 yuan. Zijin Mining Group Co., China’s largest gold producer, slid 1.9 percent to 8.38 yuan. Baoshan Iron & Steel Co., the listed unit of China’s No. 2 steelmaker, lost 0.9 percent to 6.42 yuan.

Consumer Staples

The Shanghai Futures Exchange, where the world’s top three metals contracts are traded, will increase margins and daily price limits in the latest move by China to curb speculation and cool inflation. The exchange also said it will suspend a 50 percent trading fee discount for forward contracts of more than six months, and raise the charge for rubber futures.

A measure of consumer-staples stocks in the CSI 300 advanced 1.6 percent today, the biggest increase among the stock gauge’s 10 industry groups. The consumer index today closed at its highest level since January 2008 as investors seek havens from tighter monetary policies.

Kweichow Moutai, China’s biggest producer of baijiu liquor by market value, gained 2.1 percent to 207.24 yuan, its highest close since March 2008. Wuliangye Yibin Co., the second largest, added 3.3 percent to 40.44 yuan.

Jiangsu Wuzhong Industrial Co., a Suzhou-based medicine maker, surged by the 10 percent daily limit to 6.69 yuan after saying it will get 12 million yuan in government funding for a patent medicine.

China’s stocks are “obviously attractive” though there is low appetite for risk at the end of the year after a series of initial share sales, Trivest Advisors’ Xue Lan said in a Bloomberg TV interview.

--Zhang Shidong. Editors: Darren Boey, Reinie Booysen.

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: Darren Boey at dboey@bloomberg.net

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