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China’s Stocks Drop Most in 4 Months

China’s stocks fell the most in almost four months after a central bank adviser said he sees the nation keeping tight monetary policies next year and Shenyin & Wanguo Securities Co. forecast plunging export growth.

PetroChina Co. slid to a record low and Jiangxi Copper Co. plunged to the lowest in 16 months before a manufacturing report tomorrow that will likely show the first contraction since 2009. China Vanke Co. (000002) and China Citic Bank Corp. led declines for financial stocks after Xia Bin said policy fine-tuning doesn’t mean a loosening of credit or changes in interest rates. Baoshan Iron & Steel Co. (600019) and Anhui Conch Cement Co. lost more than 3 percent after Shenyin & Wanguo estimated the export growth rate almost halved this month while industrial output slowed.

“Investors who expected looser policies have come to realize that’s not going to happen,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The economy is going to slow down. That’s bad for stocks.”

The Shanghai Composite Index (SHCOMP) tumbled 78.98 points, or 3.3 percent, to 2,333.41 at the close, the most since Aug. 8. The CSI 300 Index (SHSZ300) dropped 3.3 percent to 2,521.52. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, fell 0.8 percent in New York yesterday.

The Shanghai Composite slid 5.5 percent in November on concern growth in China, the world’s second-largest economy, is cooling and Europe’s sovereign debt crisis is deteriorating. The gauge is valued at 11.1 times estimated earnings, compared with a four-year average of 17.3 times, according to weekly data compiled by Bloomberg. It has tumbled 17 percent this year after the central bank raised rates three times and lifted the reserve-requirement ratio to curb inflation.

No RRR Cut

Premier Wen Jiabao said on Oct. 25 that the government will fine-tune economic policies as needed, fanning speculation the central bank will cut the reserve-requirement ratio or interest rates to boost growth amid cash crunch for small companies.

Fine-tuning can refer to tools other than interest rates and reserve requirements, said Xia, also a researcher at the State Council’s Development Research Center, in Beijing today. The restructuring of China’s economy will depend on fiscal policy rather than on a loosening of monetary policies, he said.

Most economists expect the government to loosen some fiscal or monetary policies without cutting interest rates through 2012 as inflation remains elevated, a Bloomberg News survey indicated this month.

A measure of financial stocks on the CSI 300 slid 3 percent today. Vanke, the biggest developer, fell 1.5 percent to 7.06 yuan. Poly Real Estate Group Co. (600048), the second largest, lost 1.1 percent to 9.21 yuan. China Merchants Property Development Co. retreated 1.7 percent to 16.35 yuan.

Export Slump

Citic Bank paced declines for lenders, slumping 3.6 percent to 4.04 yuan. China Construction Bank Corp. (939) eased 0.9 percent to 4.69 yuan even as Standard & Poor’s upgraded the credit ratings of China’s second-biggest lender along with that of Bank of China Ltd. (3988), which slid 1.7 percent to 2.88 yuan.

Industrial output may have increased 12.5 percent in November, down from 13.2 percent a month earlier, while export growth likely slowed to 7.7 percent in November from 15.9 percent in October, Meng Xiangjuan and Li Huiyong, analysts at Shenyin & Wanguo wrote in a report today.

Inflation may have slowed to 4.4 percent this month and the government is unlikely to reverse its economic policies as the inflation rate is still higher than the annual target of 4 percent, according to the securities firm, ranked the country’s most influential brokerage for research by New Fortune magazine last year. The economic figures for November are due on Dec. 9.

Tomorrow’s PMI

Baoshan Steel, the listed unit of China’s second-biggest steelmaker, retreated 3.4 percent to 4.84 yuan. Anhui Conch, the biggest cement maker, lost 5.3 percent to 16.30 yuan. SAIC Motor Corp. (600104), the largest carmaker, dropped 4.6 percent to 13.53 yuan.

A government report due tomorrow may show manufacturing is likely to contract for the first time since February 2009 this month. The Purchasing Managers’ Index may fall to 49.8 from 50.4 in October, according to the median forecast of 16 economists surveyed by Bloomberg. A reading below 50 indicates contraction.

“There’s a consensus view that economic growth will slow next year and companies related to investment will suffer,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. “The key is whether the economy is poised for a soft landing as is expected by the market.”

Jiangxi Copper, China’s biggest producer of the metal, dropped 4.2 percent to 24.84 yuan. Aluminum Corp. of China Ltd. slid 4.1 percent to 7.68 yuan. Yanzhou Coal Mining Co. (600188), the fourth-biggest coal miner, plunged 5.1 percent to 25.66 yuan. Its share estimate was cut 17 percent to 21.84 yuan at BOC International, which kept a “hold” rating. PetroChina, the biggest energy company, fell 3.2 percent to 9.46 yuan.

‘Falling Off a Cliff’

The upside for commodities is likely to be limited in 2012 as “risks to global growth are skewed to the downside,” according to Morgan Stanley. Risk aversion and deleveraging should boost the U.S. dollar, providing “additional headwind” for commodities, analyst Hussein Allidina wrote in a report.

Slumping shipping costs show exports to Europe from China are “falling off a cliff” as the euro-region crisis chokes off consumer spending, according to RS Platou Markets AS, a unit of Norway’s biggest shipbroking group.

“European imports from China will be much, much lower going forward,” said Rahul Kapoor, a Singapore-based analyst at Platou Markets. “If you see falling freight rates, that would imply that European demand is falling off a cliff.”

Cosco Shipping Co. (000428), a unit of China’s biggest shipping company, slumped 6.5 percent to 4.79 yuan. China Shipping Development Co., a unit of China’s second-biggest sea-cargo group, lost 5.5 percent to 6.53 yuan.

Supply Concerns

Europe’s effort to expand its bailout fund is falling short, forcing euro-area finance ministers to consider greater roles for the International Monetary Fund and the European Central Bank to insulate Spain and Italy from the debt crisis. A report showed that U.S. consumer confidence snapped back more than forecast in November as Americans turned less pessimistic on the outlook for jobs.

Europe and the U.S. make up about a total of 35 percent of China’s exports, according to Shenyin & Wanguo.

China’s stocks may face pressure as the lock-up period on about 160 billion yuan ($25.1 billion) of stocks ends in December, Shanghai Securities News reported, citing unidentified analysts.

Zheshang’s Wang said speculation that Shanghai will allow foreign stock listings “soon” also boosted concerns about share oversupply and diversion of funds from existing equities.

“Rumors that international board will be launched soon have also weighed on the market,” he said.

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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

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