China Stocks Fall on Tightening Concerns; Health, Consumer Shares Advance

China’s stocks fell, dragging the Shanghai Composite Index lower for a second day, on speculation tighter monetary policies to counter inflation will slow the country’s economic growth.

Industrial & Commercial Bank of China Ltd. sank 0.7 percent after the Economic Observer said regulators are assessing data from lenders to finalize new supervisory requirements. Jiangxi Copper Co. lost 2.2 percent amid concern slowing economic growth will curb commodities demand. Shanghai Fosun Pharmaceutical Group Co. led gains by healthcare and consumer-staple stocks on speculation the industries will weather tightening policies.

The Shanghai Composite, which tracks the bigger of China’s stock exchanges, fell 5.34, or 0.2 percent, to 2,866.36 at the 3 p.m. close. It declined 0.9 percent on Nov. 26. The CSI 300 Index dropped 0.2 percent to 3,190.05.

“Investors remain cautious on speculation of tighter policies including interest rate hikes,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “The fluctuations will continue with downward pressure.”

The Shanghai gauge has slumped 9.3 percent since reaching an almost seven-month high on Nov. 8 on concern that accelerated monetary tightening will crimp economic growth. The central bank has ordered banks to set aside larger reserves twice in two weeks after raising interest rates in October, the first increase since 2007.

Stocks fell today even after European governments sought to quell market turmoil by agreeing to give debt-strapped Ireland an 85 billion-euro ($113 billion) aid package and diluting proposals to force bondholders to cover a share of future bailouts. The MSCI Asia Pacific Index climbed 0.7 percent, the biggest gain in more than a week.

Bank Regulator

Industrial & Commercial Bank fell 0.7 percent to 4.29 yuan, the lowest close since Oct. 29, while Agricultural Bank lost 0.4 percent to 2.63 yuan.

The banking regulator will require lenders to maintain a minimum overall capital adequacy ratio of 8 percent, plus 2.5 percent of surplus capital and another countercyclical buffer of up to 2.5 percent, the Economic Observer’s report said.

Agricultural Bank’s Hong Kong-listed shares were also cut to “neutral” from “overweight” by JPMorgan analysts including Samuel Chen. The analysts also downgraded Bank of China Ltd.’s Hong Kong and Shanghai shares. Bank of China lost 0.3 percent to 3.31 yuan.

Commodity Companies

Gauges of materials and energy producers in the CSI 300 Index dropped 1.7 percent, the largest declines of 10 industry groups. Jiangxi Copper dropped 2.2 percent to 34.21 yuan, while Aluminum Corp. of China, the listed unit of China’s biggest maker of the lightweight metal, fell 1.4 percent to 10.22 yuan.

The Shanghai Futures Exchange said on Nov. 26 that it will increase the proportion of cash that traders must deposit with brokerages on copper, aluminum, steel wire, gold and fuel oil transactions to 10 percent of the total value after the market closes today. It will raise the limit on daily changes in prices to 6 percent, the exchange said as part of a wider government crackdown on commodity speculation and food prices.

The government will continue to tighten monetary policy to counter high inflation, BOC International said in a report today. China’s inflation may rise to 5 percent next year, the report said. Government data showed that prices grew by 4.4 percent in October, the fastest pace in two years.

“The past weekend was almost a vacuum for news on government policies,” said Dazhong’s Wu. “That added uncertainties regarding the future control measures in the market.”

Investor Havens

Measures of healthcare and consumer-staples stocks in the CSI 300 advanced 2 percent, the most among the broader index’s groups, as investors bet earnings in the two industries will weather tighter monetary policies.

Shanghai Fosun advanced 2.8 percent to 15.14 yuan, the highest close since Nov. 10. Yunnan Baiyao Group Co., a traditional Chinese medicine maker, rose 1.8 percent to 67 yuan.

Anhui Gujing Distillery Co. surged by the 10 percent daily limit to 90.75 yuan, the highest close since it first traded in October 1996. The company plans to raise as much as 1.3 billion yuan from a private placement of as many as 20 million shares, according to a statement from the Chinese liquor maker to Shenzhen’s stock exchange.

Kweichow Moutai Co., China’s biggest producer of baijiu liquor by market value, gained 4.4 percent to 216.43 yuan, the highest close since March 2008.

“Healthcare companies’ earnings are stable, regardless of price controls or recession,” said Li Ying, an analyst at Capital Securities Corp. in Shanghai. “Nothing could affect demand for medicines.”

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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