China Stocks Drop to 2-Year Low on Housing Slump, European Debt

China’s stocks fell to their lowest level in more than two years, after Chinese housing sales slumped and ratings companies said last week’s European summit did little to resolve the region’s debt crisis.

Anhui Conch Cement Co. (600585), whose materials are used in property construction, slid 4.5 percent after Fitch Ratings said China faces slower growth in home sales and construction next year. Poly Real Estate Group Co. led declines for developers after the nation’s biggest real-estate website reported housing transactions plunged more than 50 percent in 13 cities out of 35. Jiangxi Copper Co. (600362) retreated the most this month on concern faltering growth in Europe will cut demand for raw materials.

“Europe isn’t out of the woods and that’ll pose a significant threat to China’s exports going forward,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Forecasts for corporate earnings may still have room for cuts as a result of government tightening measures. The market weakness will persist until the year-end.”

The Shanghai Composite Index (SHCOMP) slumped 42.96 points, or 1.9 percent, to 2,248.59 at the close, the lowest since March 2009 and capping a four-day, 3.6 percent loss. The CSI 300 Index (SHSZ300) fell 2.3 percent to 2,421.93. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 2.4 percent in New York yesterday.

The yuan declined to 6.3673 per dollar in Shanghai, according to the China Foreign Exchange Trade System. A weaker local currency may lead to a flight of capital from the country and weigh on asset prices. China’s interest-rate swaps climbed for a second day as the central bank drained cash from the financial system.

No ‘Decisive Measures’

Stocks in Asia slumped as Moody’s Investors Service said that last week’s European Union summit failed to produce “decisive policy measures.” Fitch Ratings said a comprehensive solution has not yet been offered and predicted a “significant economic downturn” in the region.

The Shanghai Composite has slipped 3.6 percent this month as concern about a slowdown in economic growth outweighed the first cut in lenders’ reserve requirement ratios in three years by the central bank on Nov. 30. The index has tumbled 20 percent in 2011, exceeding last year’s 14 percent decline, after the central bank raised interest rates to combat inflation and curb property-price gains.

Anhui Conch, China’s biggest cement maker, lost 4.5 percent to 15.76 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., tumbled 5.1 percent to 12.95 yuan. Gansu Qilianshan Cement Group Co. (600720) slid 4.8 percent to 9.47 yuan.

Lending to developers will remain tightly controlled as the government prolongs a campaign to stabilize property prices and some smaller builders are “more vulnerable,” Fitch said in a report today.

Tax Cuts

Poly Real Estate, China’s second-largest developer by market value, fell 1.9 percent to 9.58 yuan. China Vanke Co. (000002), the biggest, lost 1.8 percent to 7.17 yuan.

Chinese housing transactions declined in 27 out of 35 cities tracked by Soufun Holdings Ltd. during the week of Dec. 5-11, according to the operator of the nation’s biggest real- estate website. Transactions fell more than 60 percent in at least 4 cities, including Tianjin and Hangzhou, it said.

China may use tax cuts to shore up expansion in the second- largest economy next year as export growth weakens and the threat of bad loans from stimulus spending narrows the government’s options. The nation’s top officials are mapping out policies for 2012 at the annual Central Economic Work Conference in Beijing. The event started yesterday, according to the state- run Xinhua News Agency.

Economic Growth Outlook

“China is no longer able to rely on massive investment in infrastructure building to stimulate the economy,” said Yao Wei, a Hong Kong-based economist with Societe Generale SA. “Tax cuts are unavoidable.”

The nation’s economic growth may “hit its bottom” in the first and second quarters next year, China Securities Journal reported, citing Ba Shusong, a researcher at the State Council’s Development Research Center. There may be moderate rebound in the third and fourth quarter and growth may be more than 8 percent next year, it said.

Jiangxi Copper, China’s biggest producer of the metal, retreated 3.2 percent to 23.34 yuan. Zhuzhou Smelter, China’s biggest producer of refined zinc, lost 6.5 percent to 9.31 yuan. Western Mining Co. (601168), the nation’s fourth-largest maker of zinc concentrate, slid 3 percent to 9.70 yuan.

Commodities fell to a two-week low on concern the European debt crisis will spread, with the Standard & Poor’s GSCI index of 24 raw materials declining 1.3 percent yesterday.

Zero Export Growth

China, the world’s biggest exporter, may face zero growth in exports next year as the euro zone enters a recession and the global economy slows, Wang Tao, a Hong Kong-based economist at UBS AG, said in an e-mailed note today.

Hugh Hendry’s “China short” fund is up 52 percent this year so far, compared with an average of 4.4 percent loss for hedge funds, the Financial Times reported, citing investors. His larger flagship Eclectica Fund is up 12 percent this year, according to the report. Hendry is chief investment officer and co-founder of London-based Eclectica Asset Management.

Chongqing Brewery Co. (600132), in which Carlsberg A/S has a 29.7 percent stake, tumbled by the 10 percent daily cap for a fourth day to 53.18 yuan. Its final summary report on the clinical studies of its Hepatitis B vaccine may be released on April 6 next year, the company said in a statement today.

--Zhang Shidong. Editors: Allen Wan, Darren Boey

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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