China’s Stocks Decline for Fourth Day on Cash Crunch, Europe Debt Concern

China’s stocks fell for a fourth day as investors speculated Europe’s debt crisis will worsen and lending to small companies may drop as banks hoard cash to meet year-end reserve-ratio requirements.

China Cosco Holdings Co., the nation’s largest shipping Line, dropped to a record low as Europe’s lenders sought to borrow more cash from the European Central Bank than economists had expected, increasing concern the crisis won’t be contained. Citic Securities Co. paced declines for brokerages on the prospect slumping trading volumes will curb profit growth. Focus Technology Co. and Anhui Gujing Distillery Co. led a gauge of small-company stocks lower as money market rates jumped.

“There’s no confidence in the market and the worry is focused on the economic slowdown and a poor export outlook,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Investors are worried the government doesn’t have many tools to bolster growth now as debt levels are now higher than a couple of years ago.”

The Shanghai Composite Index (SHCOMP) dropped 4.85 points, or 0.2 percent, to 2,186.30 at the close, the lowest in a week. The index trades at an estimated price-earnings ratio of 10.5 times, a record low, according to weekly data compiled by Bloomberg that began tracking the multiple in 2006.

The CSI 300 (SHSZ300) added 0.1 percent to 2,341.33 as coal producers rose and material companies, the worst performing group this year, pared losses. The CSI Smallcap 500 Index fell 1.3 percent to 3,298, the lowest level since September 2009. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, slid 1.5 percent at the close in New York.

Commodities Fall

The Shanghai Composite has fallen 6.3 percent in December, adding to a 22 percent slump this year, after the central bank raised interest rates three times to cool inflation and exports to Europe slowed because of the region’s debt crisis.

Trading volume of stocks in the index is 27 percent less than the 180-day average, according to data compiled by Bloomberg. Citic Securities, which announced yesterday it completed the sale of 51 percent stake in China Asset Management Co., fell 1.4 percent to 9.83 yuan. Haitong Securities Co. slid 2.4 percent to 7.34 yuan.

In Europe, a total of 523 euro-area banks took a record 489 billion euros ($639 billion) from the ECB in three-year loans yesterday, exceeding the median estimate of 293 billion euros among economists surveyed by Bloomberg. Europe accounts for about 18 percent of China’s exports, according to Shenyin & Wanguo Securities Co.

Shippers Drop

China Cosco dropped 1.6 percent to 4.99 yuan, the lowest since the stock started trading in June 2007. Cosco Shipping slumped 1.6 percent to 4.20 yuan.

A gauge of material producers in the CSI 300 slipped 0.2 percent, the most among 10 industry groups. The measure has plunged 38 percent this year on concern an economic slowdown will curb demand for metals. Shandong Gold Mining Co. slid 1.7 percent to 28.89 yuan.

Taiyuan Heavy Industry Co. (600169) paced declines for industrial stocks, falling 1.8 percent to 5.02 yuan. Jing Ulrich, chairman of global markets for China at JPMorgan Chase & Co., said Dec. 19 that she is bearish on “cyclical” stocks such as heavy industries.

The seven-day repurchase rate, a gauge of funding availability in the financial system, rose 17 basis points, or 0.17 percentage point, to 3.77 percent today in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

“It’s the year-end effect,” Ju Wang, a Singapore-based senior strategist at Barclays Capital, said yesterday. “Demand for cash will increase as people prepare for the Chinese holidays and this will tighten liquidity.”

Smallcaps Slump

The CSI smallcap gauge (SH000905) has tumbled 33 percent this year. The ChiNext measure of start-up companies slipped 0.5 percent today, adding to a 33 percent slide in 2011. Anhui Gujing, which makes spirits and wine, fell 1.5 percent to 83.80 yuan. Focus Technology plunged 3.1 percent to 44.88 yuan in Shenzhen.

China’s financial markets will be closed on Jan. 2-3 for public holidays. Chinese New Year starts on Jan. 23.

China should boost loans to small companies, the Financial News wrote in a front-page commentary today. The country should increase lending for agriculture, affordable housing construction and strategic emerging industries, according to the publication by the People’s Bank of China.

The central bank last month lowered the lenders’ reserve requirement ratio for the first time since 2008. The central bank had boosted the ratio to a record high to prevent excess lending from creating asset bubbles.

More Chinese bankers are forecasting a further loosening in monetary policy as economic growth slows, and inflation expectations of households are easing, surveys by the central bank showed today.

Policy Outlook

About 14.4 percent of bankers expect more monetary policy easing, compared with 3.5 percent in last quarter’s survey. About 56 percent predict the current policy bias will be maintained, while the rest foresee a tightening, the central bank said. Among households, 36.8 percent forecast prices will rise in the next three months, compared with almost half in the previous survey.

The government may relax enforcement of property curbs by the second quarter, Andy Rothman, China macro strategist at CLSA Asia-Pacific Markets, said in an interview in Shanghai.

While China’s economy may grow 8.5 percent next year, it may still introduce “modest” fiscal stimulus to offset rising unemployment in export-oriented regions such as southern Guangdong province, he said. The measures will target the water, power transmission and low-income housing industries, he said.

China Vanke Co., the biggest Chinese developer, gained 1.6 percent to 7.42 yuan, while Poly Real Estate Group. added 1.6 percent to 10.07 yuan.

--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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