China's Stocks Fall on Concern About Rate Increases, Possible Property Tax

China’s stocks fell the most in a week on speculation the government will increase interest rates this weekend, boosting concern tightening measures will slow corporate profit growth.

Industrial and Commercial Bank of China Ltd. and China Construction Bank slid more than 1 percent after the government moved forward the release of economic data including inflation to Dec. 11 from next week. China Vanke Co. and Gemdale Corp. led declines for real-estate developers after the China Securities Journal reported Shanghai will be among the first cities to undertake property tax trials.

“Investors will be very cautious before this weekend pending the announcement of November inflation and a possible interest-rate hike,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Uncertainty is about to peak and this may drag the market down.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 27.31, or 1 percent, to 2,848.55 at the 3 p.m. close, the most since Nov. 30. The CSI 300 Index fell 0.9 percent to 3,171.88, led by financial companies.

China’s statistics bureau will release November economic data on Dec. 11 at 10 a.m. local time, according to a statement on its website today. The data, which includes consumer prices, retail sales, fixed-asset investment and industrial output, was originally scheduled to be released on Dec. 13.

The central bank may raise rates around the time set for the release of November’s inflation data, the China Securities Journal reported yesterday, citing Li Huiyong, an analyst at Shenyin & Wanguo Securities Co, who estimated consumer prices may have risen 5.1 percent last month.

Rate ‘Window’

It is the second time in four months the bureau has changed the publication date of its monthly economic figures. The bureau said on Sept. 10 that its decision to bring forward the release of August data to Saturday from Monday shouldn’t be “over interpreted” after the move spurred speculation the central bank was preparing to raise rates that weekend. The bank moved a month later with a 25 basis point increase.

“This weekend is now regarded as a ‘window’ for China to raise rates,” said Li. “Some investors may play safe before the announcements.”

ICBC, the nation’s biggest lender, slid 1.4 percent to 4.25 yuan. China Construction Bank, the second largest lender, dropped 1.2 percent to 4.77 yuan.

Benchmark money-market rates rose the most in more than a week on speculation policy makers will boost rates for a second time since October to help damp inflation. Consumer prices gained 4.4 percent in October, the fastest pace in two years, because of higher food costs.

The seven-day repurchase rate, which measures lending costs between banks, advanced 30 basis points to 2.5 percent, according to the National Interbank Funding Center.

Property Tax

The Shanghai gauge has lost 9.8 percent since reaching an almost seven-month high on Nov. 8 on concern that monetary tightening will curb economic growth. The central bank last month ordered banks to set aside larger reserves for the second time in two weeks. The measure is down 12 percent this year, Asia’s worst performer.

China Vanke, the biggest developer, lost 2 percent to 8.49 yuan. Gemdale retreated 1.8 percent to 5.91 yuan.

The property tax trial may start sometime between the beginning of next year and the annual National People’s Congress meetings held in March, the China Securities Journal reported, citing Yang Hongxu, a researcher at E-House China R&D Institute.

PetroChina Co., the nation’s largest oil company, dropped 1.9 percent to 11.56 yuan.

Rail Stocks

Crude for January delivery lost as much as 1.2 percent to $87.61 a barrel, in electronic trading on the New York Mercantile Exchange. The contract was at $87.75 in Singapore.

China railway stocks rallied after the China Securities Journal reported the government may invest 3 trillion yuan to 4 trillion yuan ($602 billion) in the industry as part of its five-year plan for the period from 2011 through 2015. A draft of the rail investment plan has already been completed, the Beijing-based newspaper reported, citing an unidentified person.

China CNR Corp. and CSR Corp., the nation’s biggest railcar makers, surged to the highest since their initial public offerings. China CNR jumped 6 percent to 6.74 yuan, the highest since December 2009. CSR Corp. gained 7 percent to 7.69 yuan, its highest close since August 2008.

Future rally attempts for the Shanghai Composite may falter after the benchmark gauge dropped below 3,000 last month, said Thomas Schroeder, managing director at Chart Partners.

‘See Saw’

The Shanghai gauge gained 34 percent between this year’s closing low on July 5 and high of 3,159.51 on Nov. 8, boosted by expectations central banks around the world will inject more cash into their economies. Since then, the index has lost 9.1 percent after the government intensified tightening.

“After the failed 3,000 breakout we have now declined back to key support at 2,790, where trendline support and the 200-day moving average coincide,” said Schroeder. The failure “does increase odds that a future rally attempt will not only disappoint but may very well turn south. See-saw swings above and below key breakout points have a tendency to precede false rally cycles.”

Chinese companies that are dependent on economic growth may outperform the market next year as inflation will be “mild,” valuations are “cheap” and the outlook for earnings is “solid,” according to Morgan Stanley.

Investors should switch to so-called cyclical stocks, such as banks, developers, steelmakers and energy producers, analysts led by Jerry Lou wrote in a report today. The brokerage has an “underweight” on consumer-related stocks because of “high” valuations and earnings expectations.

--Irene Shen. With assistance from Zhang Shidong. Editor: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Irene Shen in Shanghai at +86-21-6104-3049 or ishen4@bloomberg.net

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

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