China’s Stocks Decline After Weeklong Holiday on Policy Outlook

China’s stocks fell after property and retail sales weakened during a weeklong holiday and the government signaled caution toward further easing of monetary policy by holding off on a cut in bank reserve requirements.

Industrial & Commercial Bank of China Ltd. led a retreat for lenders after money-market rates rebounded. China Vanke Co. (000002) and Poly Real Estate Group Co., the nation’s biggest developers, slid more than 4 percent after Centaline Property Agency Ltd. said home sales plunged in major cities during the Chinese New Year holiday. GD Midea Holding Co., China’s second-biggest appliance maker, paced declines for consumer stocks after retail sales growth slowed.

“There was no reserve-ratio cut during the holiday so liquidity will still be tight,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “It looks like the government isn’t in a hurry to release too much liquidity into the market as opposed to the market expectation of an immediate and aggressive relaxation.”

The Shanghai Composite Index (SHCOMP) slid 34.08 points, or 1.5 percent, to 2,285.04 at the close. The CSI 300 Index declined 1.7 percent to 2,460.72. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 2.8 percent in New York last week, while the MSCI Asia Pacific Index climbed 1.9 percent. The Hang Seng China Enterprises Index (HSCEI) rose 2.7 percent in the two trading days it was open last week.

Barclays Capital Asia Ltd., JPMorgan Chase & Co. and Industrial Bank Co. said this month that lenders’ reserve ratios were likely to fall ahead of the Lunar festival, which boosts demand for cash. The central bank instead used reverse- repurchase contracts to add money to the financial system.

Avoiding Credit ‘Explosion’

“The central bank aims to ease policies prudently and pace loan growth at the beginning of the year so as to avoid a replay of the credit explosion in 2009 and 2010 and prevent inflation from rebounding,” said Lu Zhengwei, a Shanghai-based economist at Industrial Bank.

ICBC, the nation’s biggest listed lender, dropped 2.1 percent to 4.27 yuan. China Construction Bank Corp. (939), the second largest, lost 2.9 percent to 4.74 yuan. China Minsheng Banking Corp. retreated 2.3 percent to 6.38 yuan.

China’s money-market rate jumped for the first time in four days today. The seven-day repurchase rate, a gauge of funding availability in the financial system, surged 22.4 basis points, or 0.224 percentage point, to 4.3515 percent as of 3:21 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

A gauge of 34 property stocks in the Shanghai Composite slumped 2.8 percent, the most among the five industry groups. Vanke, the nation’s biggest listed property developer, fell 4.4 percent to 7.55 yuan. Poly Real Estate, the second largest, lost 4.7 percent to 10.43 yuan. China Merchants Property Development Co. retreated 3.3 percent to 18.27 yuan.

Signs of Slowdown

Home transactions in China’s four biggest cities Beijing, Shanghai, Guangzhou and Shenzhen recorded 109 units during the week-long Chinese New Year, according to an e-mailed report from Centaline Property Agency Ltd. That was 66 percent down from the same holiday period last year, China’s biggest real-estate brokerage said.

Sales in Beijing fell to zero during the holiday, the first time in three years that no sales were recorded for a week, the Beijing Morning Post newspaper reported yesterday, citing data from the local government. Average home prices dropped 23.6 percent from a year earlier as of Jan. 27, it said.

Midea declined 4 percent to 12.84 yuan. Gree Electric Appliances Inc. (000651), China’s largest maker of home air-conditioners, dropped 2.2 percent to 18.36 yuan. Yantai Changyu Pioneer Wine Co. (000869), the listed unit of the country’s biggest vintner, tumbled 7.5 percent to 95.30 yuan.

Retail Sales

Sales by China’s main retailers and restaurants during the Chinese holiday rose 16.2 percent from a year earlier to 470 billion yuan ($74.4 billion), the Ministry of Commerce said in a Jan. 28 statement on its website. That compared with a 19 percent gain in the same period last year, according to Guotai Junan Securities Co.

The Shanghai Composite gained 3.3 percent in the week ended Jan. 20, its first back-to-back weekly gain in two months, on speculation slowing growth will prompt the central bank to relax monetary policies and the government will take measures to support stocks. China has no plans to invest local pensions in the market “temporarily,” the Xinhua News Agency reported on Jan. 20, citing Yin Chengji, spokesman at the Ministry of Human Resources and Social Security.

The Shanghai index, up 3.9 percent this year, trades at 9.4 times estimated earnings, near the record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg.

Quantitative Easing

Federal Reserve Chairman Ben S. Bernanke laid the groundwork last week for a third round of so-called quantitative easing, or QE3, saying that the Fed is prepared for further “accommodation.” The central bank, which bought $2.3 trillion of debt as part of QE1 and QE2, also reiterated a commitment to keep rates low until at least 2014.

The U.S. economy grew at a 2.8 percent annualized rate in the three months through December, compared with a forecast for a 3 percent increase. Growth accelerated from 1.8 percent in the previous quarter.

Emerging-market stocks would benefit from the cash injection created by a third round of U.S. asset purchases, with China, Russia and Taiwan looking “attractive,” Templeton Asset Management’s Mark Mobius said in a phone interview from Bangkok on Jan. 27.

Mobius Forecast

Chinese stocks will “probably see a rally” this week, said Mobius. “There’s no question” China will continue to loosen monetary policy and he recommends consumer, energy and commodity stocks in the country, he said.

The People’s Bank of China may skip its usual sale of bills this week because of maturing reverse bond repurchase agreements, Market News reported today, citing unidentified traders. China won’t push for an expansion of cities participating in a property tax trial in 2012, Caixin Online reported today, citing the State Administration of Taxation.

Chinese listed companies have started to announce annual earnings reports and will finish before the end of April. Thirty-eight companies in the Shanghai Composite have released annual profits so far, gaining 19 percent on average and trailing estimates by 2.9 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

--Zhang Shidong. Editors: Allen Wan, Matthew Oakley

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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