China’s stocks fell to the lowest in three weeks after Citigroup Inc. and JPMorgan Chase & Co. cut their growth forecasts and investors speculated a cut in banks’ reserve ratios won’t be enough to stem an economic slowdown.
Jiangxi Copper Co. (600362) and Aluminium Corp. of China Co. led declines for materials producers on concern a slowdown will reduce demand for commodities. Liquor maker Kweichow Moutai Co. (600519) slid 2.4 percent on speculation the stock’s rally to a record high last week was excessive after a report showed retail sales grew less than estimated. China Eastern Airlines Corp., the second-biggest carrier, dropped the most in six weeks after Cathay Pacific Airways Ltd. said economy fares have dropped as much as 10 percent this year amid waning travel demand.
“The stock market was not impressed by the RRR cut,” Christopher Wood, chief equity strategist at CLSA Asia-Pacific Markets, said in an interview in Beijing. “The external environment has to deteriorate more significantly for more aggressive easing.”
The Shanghai Composite Index (SHCOMP) fell 0.6 percent to 2,380.73 at the close, the lowest level since April 19. The CSI 300 Index (SHSZ300) dropped 0.8 percent to 2,615.53. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.6 percent to 97.76 in New York.
The Shanghai index dropped 2.3 percent last week, the most since April. The decline trimmed the advance in the Shanghai Composite to 8.2 percent this year. Stocks in the gauge are valued at 10.2 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.
The reserve-ratio cut, effective May 18, reduces the required level against deposits to 20 percent for large banks and 18 percent for smaller institutions. The move will probably release 450 billion yuan ($71 billion) into the financial system, according to Goldman Sachs Group Inc. Bank of America Corp. and HSBC put the amount at 400 billion yuan.
Citigroup cut its full-year China growth forecast to 8.1 percent from 8.4 percent, while JPMorgan lowered its estimates to 8 percent from 8.2 percent. Their new forecasts came after government reports showed industrial production grew at the slowest pace since 2009 in April, retail sales rose less than estimated and export growth slowed.
Jiangxi Copper, the biggest producer of the metal, slid 2.3 percent to 25.54 yuan. Aluminium Corp. of China dropped 1.8 percent to 6.97 yuan.
Copper declined to a four-week low on concerns China’s bank reserve cut signaled a slowdown in the world’s second-largest economy may be steeper than expected and amid speculation Greece may exit from the euro area. Alumnium, zinc, lead and nickel also slid.
Greece’s political deadlock looked set to continue for a second week as President Karolos Papoulias failed to secure agreement on a unity government and avert new elections. Syriza, the left-wing group opposed to austerity measures, defied overtures to join the government yesterday.
A measure of consumer staples producers in the CSI 300 declined 1.8 percent, the most among 10 groups. Kweichow Moutai lost 2.4 percent to 222.18 yuan. The stock trades at 19.5 times estimated earnings, compared with 11 for the broader CSI 300.
China’s April retail sales rose 14.1 percent from a year earlier, lower than the 15.1 percent estimated by economists and the 15.2 percent increase in March.
China needs to cut interest rates to bolster the economy as cuts in reserve ratios are insufficient to support loan demand, according to Francis Cheung, head of China and Hong Kong strategy for CLSA.
“The RRR cut is a small positive for Chinese stocks, but the step is not aggressive enough considering the slowing economy and weak loan demand,” he said in an interview during a forum in Beijing. “China needs to take a bigger step to stimulate the economy, such as interest-rate cuts.”
China Eastern declined 3.1 percent to 4.05 yuan. Air China Ltd. slid 2.1 percent to 6.15 yuan. Cathay Pacific, Asia’s biggest international carrier, said economy fares have dropped between 8 percent and 10 percent this year on the uncertain economic outlook.
Chinese regulators will no longer require qualified foreign institutional investors to invest at least 50 percent of funds in stocks, the Shanghai Securities News reported today, citing an unidentified custodian bank. Regulators may raise a $1 billion investment quota for a single institutional investor, according to the newspaper.
Citic Securities Co., the largest Chinese brokerage, gained 0.8 percent to 12.87 yuan. Haitong Securities Co. (600837) increased 0.6 percent to 9.76 yuan.
The IShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., fell 5.5 percent last week to $35.33, the lowest level since January.
“China’s growth is slowing perhaps more than markets were believing,” said Daniel Arbess, a partner at Weinberg Partners LP who manages the Xerion hedge fund, in an e-mailed reply. “Markets are responding badly.” Arbess said he sold his holdings of Chinese equities at the beginning of the year.
A 51 percent majority are confident in the policies of President Hu Jintao, according to the quarterly Bloomberg Global Poll of investors, analysts and traders who are subscribers.
China’s economy will either improve or remain stable this year, according to 68 percent of respondents, with the share anticipating a deterioration falling to 30 percent, the lowest level since the question was first included in the poll in September.
“For investors, China is a difficult decision: do you play the slowdown, sell or go short, or do you wait for the policy reaction to kick,” John Lomax, an emerging-markets strategist at HSBC Holdings Plc, said by phone from London. “Policy makers have little appetite for sustained weak growth, so it can be dangerous to play the slowdown too aggressively here.”
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