China’s Stocks Decline Most in a Week as Hopes for Monetary Easing Wane

China’s stocks fell, dragging the benchmark index down the most in a week, as speculation the government would loosen monetary policies waned.

China Vanke Co. (000002) and Poly Real Estate Group Co. paced losses by developers after the China Daily said Beijing will restrict home purchases. CSR Corp. (601766) and China CNR Corp., the nation’s biggest train makers, declined more than 1 percent as the China Business News said the railway ministry may spend less on new locomotives. Changjiang Securities Co. and Huatai Securities Co. fell after net income slumped last year.

“An immediate reserve-ratio cut probably won’t come soon given policy makers’ concern about a possible rebound in inflation,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “The tight liquidity condition won’t change soon. Earnings risks have yet to be fully exposed with the reporting season kicking off.”

The Shanghai Composite Index (SHCOMP) dropped 30.43 points, or 1.3 percent, to 2,244.58 at the close. The CSI 300 Index declined 1.7 percent to 2,394.33. The ChiNext index of Shenzhen-listed start-up companies tumbled 6.2 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.3 percent in New York yesterday.

The Shanghai Composite rallied 6.4 percent in the three days through Jan. 10, the most for such a period since October 2010, as slowing trade data boosted speculation the government would act to spur growth and Premier Wen Jiabao called for measures to support the stock market. The index fell 1.8 in the past three days as Credit Suisse Group AG and Royal Bank of Scotland Group Plc said inflation would hamper the government’s ability to ease monetary policy.

Interest Rates

Swaps traders are also reining in expectations for interest-rate cuts in the world’s second-largest economy after increases in lending and manufacturing. The derivatives reflect bets that the People’s Bank of China will lower its benchmark one-year deposit rate to about 2.75 percent from 3.50 percent in the coming 12 months, after indicating one percentage point of reductions at the start of the year, according to data compiled by Bloomberg.

Manufacturing unexpectedly expanded in December and new loans exceeded all 18 economist estimates in a Bloomberg survey, official data in the past week show. Consumer prices rose 4.1 percent from a year earlier in December, compared with 4.2 percent in November, a government report showed yesterday.

Data released today also showed foreign-exchange reserves dropped for the first time in more than a decade as foreign investment moderated, the trade surplus narrowed and Europe’s crisis spurred investors to sell emerging-market assets.

Property Curbs

A gauge tracking property stocks in the Shanghai Composite lost 1.8 percent. Poly Real Estate, China’s second-largest developer by market value, fell 1.1 percent to 10.28 yuan. Vanke, the biggest, dropped 0.8 percent to 7.46 yuan. Gemdale Corp. (600383) slipped 2.3 percent to 5.09 yuan.

Beijing Mayor Guo Jinlong pledged to restrict property purchases and build more government subsidized housing this year to cool the real estate market, the China Daily reported today. China’s home prices fell for a fourth month in December after the government reiterated plans to maintain curbs that include higher down-payment and mortgage requirements, according to SouFun Holdings Ltd., owner of the nation’s biggest real estate website.

Declines among developers helped make the Shanghai Composite the worst performer among the world’s 15 biggest markets in the two years through 2011 with a 33 percent drop. Today’s losses pared the Shanghai gauge’s gain this year to 2.1 percent. The index is still up 3.8 percent this week, the first weekly advance in two months.

Stock Support

The Shanghai Composite trades at 9.2 times estimated earnings, near the record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg.

Premier Wen called for measures to reform initial public offerings and boost dividend payouts, the Shanghai Securities News reported this week. China’s stocks regulator will “actively” push pension and housing funds to begin investing in capital markets, and encourage long-term investors such as insurers and corporate pension plans to buy more shares, the China Securities Regulatory Commission also said this week.

“Stocks climbed earlier this week on signs of government support for the stock market and the economy but nothing concrete has yet materialized,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Now we’re entering the earnings season investors may turn more cautious.”

Changjiang Securities dropped 3.3 percent to 7.25 yuan. The company said net income decreased 65 percent last year. Huatai Securities sank 0.8 percent to 7.87 yuan after saying profit slumped 47 percent in 2011.

Earnings Growth

Chinese companies have started to announce annual earnings reports and will finish before the end of April. Eleven companies in the Shanghai Composite have released annual profits for 2011 so far, with an average gain of 22 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

China’s foreign-exchange reserves, the world’s biggest, fell to $3.18 trillion on Dec. 31 from $3.2 trillion Sept. 30, People’s Bank of China data released in Beijing showed today. The quarterly drop was the first since the midst of the Asian financial crisis in the second quarter of 1998, according to data compiled by Bloomberg.

Rail Investment

CSR, the nation’s biggest train maker, lost 1.1 percent to 4.47 yuan. CNR, the second biggest, slipped 2.5 percent to 4.31 yuan.

The railway ministry’s purchases of locomotives may fall to 80 billion yuan ($13 billion) this year from a planned 126 billion yuan in 2011 and 107 billion yuan of actual buying in 2010, the China Business News reported today, citing an unidentified person close to the ministry. A deadly train crash on July 23 that killed 40 people prompted the government to reduce the speed of bullet trains and delay new projects.

China’s economic growth may have slowed to 8.7 percent from a year earlier in the fourth quarter of 2011, according the median estimate of economists in a Bloomberg survey. The data are scheduled to be released Jan. 17. UBS AG estimates the pace of expansion may slow to 7.7 percent this quarter. The central bank cut lenders’ reserve requirement ratios for the first time since 2008 on Nov. 30.

The government will accelerate the pace of approving qualified foreign institutional investors, the China Securities Journal said today, citing Wang Lin, head of the China Securities Regulatory Commission’s funds department.

--Zhang Shidong. Editors: Richard Frost, 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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