China Stocks Fall After Inflation Report, Narrowing Week’s Gains

China’s stocks fell, paring the biggest weekly gain since August, after a report on inflation signaled the government won’t loosen its tightening policies.

Gemdale Corp. (600383) led declines for property developers after China’s consumer prices increased 6.1 percent in September from a year earlier. Baoshan Iron & Steel Co. and shipper China Cosco Holdings Co. slumped at least 0.9 percent after UBS AG advised investors avoid steel and shipping stocks. NARI Technology Development Co. fell the most in a year after saying 30 million shares will become tradable next week.

Chinese stocks “will be under great pressure this quarter, as inflation is high and doesn’t provide much comfort for a policy easing,” said Gao Ting, Beijing-based chief China strategist at UBS, in an interview at Bloomberg’s offices in Shanghai. “Investors should stay cautious.”

The Shanghai Composite Index slipped 7.4 points, or 0.3 percent, to 2,431.38 at the close, narrowing this week’s gain to 3.1 percent. The CSI 300 Index fell 0.3 percent to 2,653.78.

The Shanghai Composite capped its best weekly rally since the week ended Aug. 26 on government support measures. The State Council announced this week easier access to loans for cash- strapped smaller companies, while a unit of China’s sovereign wealth fund began buying shares of the nation’s four biggest lenders and Xinhua News Agency reported regulators approved cross-border exchange-traded funds.

China’s consumer prices matched the median forecast in a Bloomberg News survey of 22 economists and followed a 6.2 percent gain in August. Food prices rose 13.4 percent in September, the same pace as in August, as pork costs jumped 44 percent, the report from the National Bureau of Statistics said. The government’s full-year inflation target is 4 percent.

Inflation ‘Sticky’

Elevated inflation is limiting Premier Wen Jiabao’s room for easing monetary policy as Europe’s debt crisis cuts demand for exports and small businesses in China report a credit squeeze. Growth in the world’s second-biggest economy is already slipping, with analysts forecasting that data next week will show a 9.3 percent expansion in the third quarter, down from 9.5 percent in the previous three months.

Gemdale slid 1.2 percent to 4.87 yuan. Shanghai Shimao Co. sank 1.3 percent to 11.58 yuan. Conditions are not yet ripe for China to relax its tightening policies on the property market and some of the measures may be maintained as home sales in the first half of the year were still “sound,” Wang Yulin, deputy head of the policy research center at the Ministry of Housing and Urban-Rural Development said in an interview in today’s China Securities Journal.

Stocks Outlook

The Shanghai index has tumbled 13 percent this year, driving down estimated price earnings to 11.2 times, compared with the record low of 10.8 times set on Oct. 10, according to data compiled by Bloomberg. China has raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of their deposits to curb inflation, running near a three-year high.

The Shanghai measure may drop a further 10 percent from current levels by the year end, according to UBS’ Gao. Investors should avoid cyclical industries including construction materials, steel, shipping and ports, he said.

PetroChina Co., the biggest oil company, dropped 1 percent to 9.89 yuan. Baoshan Steel, China’s biggest publicly traded steelmaker, lost 0.9 percent to 5.27 yuan. China Cosco Holdings slumped 1.6 percent to 6.66 yuan.

NARI Technology plunged 7.5 percent to 31.82 yuan, the biggest drop since Oct. 13, 2010. The company said 30 million shares will become tradable on Oct. 21, which account for 2.87 percent of its total, according to a statement to the Shanghai Stock Exchange.

A gauge of financial stocks in the CSI 300 rose 4.8 percent this week, led by a 13 percent rally for Haitong Securities Co. Brokerages surged on the prospect of an earnings boost from working on cross-border ETFs.

After the market close today, the People’s Bank of China said China’s new local-currency lending was 470 billion yuan last month and M2 money supply rose 13 percent. The M2 growth figure was the lowest since February 2002, according to data compiled by Bloomberg.

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Shiyin Chen at schen37@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.