China’s Stocks Decline After Rallying Most Since October 2009 Yesterday

China’s stocks dropped, after the benchmark index rose the most since October 2009 yesterday, on concern a property-market slowdown will damp demand for building materials and consumer goods.

China Vanke Co. (000002) paced losses by property developers after the nation’s home prices posted their worst performance last year in December. GF Securities Co. (000776), the nation’s second-largest listed brokerage, advanced 1 percent after the China Securities Journal said the government may take steps bolster long-term investor shareholdings. China’s markets are closed next week for the Lunar New Year holidays.

“After the big rally yesterday and with next week’s holidays coming up the market may take a pause here,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Though market expectations are high that the government will encourage fresh money into stocks, it remains to be seen how soon these support measures will materialize.”

The Shanghai Composite Index (SHCOMP) fell 31.99 points, or 1.4 percent, to 2,266.38 at the close. The CSI 300 Index dropped 1.6 percent to 2,422.19. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 1.1 percent in New York yesterday.

Ten-day volatility on the Shanghai Composite rose to the highest level today since November 2010, after the gauge rose or fell by more than 1.3 percent on seven of the 11 trading days this year.

Stock Support

The Shanghai Composite gained 4.2 percent yesterday, the most since October 2009, as slowing economic growth boosted expectations for monetary easing and the China Securities Journal said the nation’s local pension funds may start investing in domestic stocks this quarter.

The Shanghai index trades at 9.3 times estimated earnings, near the record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg. It was the worst performer among the world’s 15 biggest markets in the two years through 2011 with a 33 percent drop.

A gauge of property stocks in the Shanghai Composite slid 1.7 percent today. Vanke, the nation’s biggest listed property developer, fell 0.9 percent to 7.51 yuan. Poly Real Estate Group Co., the second largest, lost 2.2 percent to 10.12 yuan. RiseSun Real Estate Development Co. (002146) fell 1.3 percent to 8.60 yuan.

Prices in 52 of 70 cities monitored by the government declined from the previous month, the National Statistics Bureau said in a statement on its website today. New home prices in the nation’s four major cities of Shanghai, Beijing, Shenzhen and Guangzhou declined for a third month, it said.

Property Curbs

The government said last month it won’t back away from curbs on the real-estate industry, with the financial center of Shanghai and the capital of Beijing among Chinese cities that have said they will continue to impose restrictions on home purchases this year.

Building-material stocks dropped. Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, fell 1.7 percent to 5.10 yuan. Hebei Iron & Steel Co., the listed unit of the biggest, lost 1.3 percent to 3.01 yuan.

China Shenhua Energy Co. dropped among coal producers after Xinhua News Agency said prices of the raw material may fall in the first half.

Shenhua, the nation’s largest coal producer, sank 1.8 percent to 26.88 yuan. China Coal Energy Co., the second largest, lost 3.3 percent to 9.47 yuan.

GF Securities advanced 1 percent to 23.84 yuan. Huatai Securities Co. added 0.4 percent to 8.22 yuan. Industrial Securities Co. climbed 0.4 percent to 10.57 yuan.

Investment Quota

The government may introduce preferential policies for institutional investors to encourage long-term stockholding, the China Securities Journal said today, without saying where it got the information.

China may also more than double the combined quota for its qualified foreign institutional investor program from the current $30 billion, the China Business News reported today, citing an unidentified person close to regulators.

China’s economy grew 8.9 percent last quarter, below 9 percent for the first time since mid-2009, based on previously reported data, and compared with the 8.7 percent median forecast in a Bloomberg News survey of 26 economists. Full-year economic growth slowed to 9.2 percent from 10.4 percent in 2010, yesterday’s report showed.

Chinese and Indian (SENSEX) equities may outperform other Asian markets this year as slowing inflation allows the countries’ governments to ease monetary policies and spur growth, according to Manulife Asset Management.

Manulife has added more shares of Indian and Chinese companies to its regional funds, said Linda Csellak, Hong Kong- based head of Asia Pacific equities at Manulife, which has about $199 billion of assets. Banks and property developers may lead the rally as looser monetary policies will boost loan and housing demand, she said in an interview in Bangkok yesterday.

--Zhang Shidong. Editors: Richard Frost, Chan Tien Hin

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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