China Construction Bank Corp. (601939) and China Vanke Co. led declines for banks and developers after the Shanghai Securities News said combined net lending for the nation’s four biggest banks was almost zero in first two weeks of this month. Sany Heavy Industry Co. slid 3.6 percent, sending a gauge of industrial stocks to its biggest loss in a week, after Deutsche Bank AG recommended investors underweight Chinese stocks amid concerns about industry overcapacity hurting earnings growth.
The Shanghai Composite Index (SHCOMP) fell 29 points, or 1.2 percent, to 2,346.19 at the close, the lowest level since April 17 and the longest losing streak since January. The index trades at 10.1 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg. The CSI 300 Index (SHSZ300) lost 1.6 percent to 2,574.65.
“Investors’ confidence in holding stocks has been shaken by bad economic data of late,” Zhang Qi, an analyst at Haitong Securities Co., said in a telephone interview in Shanghai. “However, the market should rebound after another two to three days of retreat. After all, there are still expectations the government will take steps to boost the economy.”
About 7.8 billion shares changed hands in the Shanghai Composite yesterday, 1.6 percent lower than the daily average this year. Thirty-day volatility in the gauge was at 14.36 today, the lowest in a year. For the year, the Shanghai index has climbed 6.7 percent on expectations the government will relax monetary policies and take more measures to bolster equities. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, tumbled 0.2 percent to 95.24 in New York yesterday.
The euro tumbled to a four-month low amid concern Greece will leave the shared currency. Greece will hold new elections after President Karolos Papoulias failed to broker a governing coalition following an inconclusive May 6 vote.
Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.
Combined net lending by Industrial & Commercial Bank of China, China Construction Bank, Bank of China and Agricultural Bank of China Ltd. was almost zero in the two weeks ended May 13, Shanghai Securities News reported, citing unidentified person familiar with the matter. Two of the banks increased outstanding loans by less than 20 billion yuan, while the other two saw declines, according to the paper.
A gauge of banks and developers in the CSI 300 fell 1.9 percent, the second most among 10 industry groups. China Construction Bank, the second-biggest lender, dropped 1.7 percent to 4.51 yuan. China Citic Bank Corp. fell 2.1 percent 4.31 yuan and Industrial Bank Co. slid 2.2 percent to 13.40 yuan. China Vanke, the largest developer, lost 3.4 percent to 8.61 yuan. Rival Poly Real Estate Group Co. retreated 2.4 percent to 12.66 yuan.
Investors should underweight Chinese stocks even though they appear very cheap because the economy is undergoing a “messy transition” with industrial overcapacity hurting corporate earnings, John-Paul Smith, Deutsche Bank’s strategist, wrote in a report dated yesterday.
Sany Heavy, the biggest maker of excavators which said it may cut its unit-sales forecast for this year, lost 3.6 percent to 13.79 yuan. Zoomlion Heavy Industry Science & Technology Co. fell 3.1 percent to 9.69 yuan.
“Short term the market is certainly starting to look oversold and could well rally on a fall in the oil price or monetary easing, but until we can obtain more clarity about the structural drivers of the economy and the corporate sector, we remain underweight,” Smith wrote. “Like the U.S. in 2007, the superficially cheap valuations are signaling a major break in the growth model over the medium term.”
Deutsche Bank is the latest brokerage to highlight downside risks to the Chinese economy after data last week showed industrial output rose the least since May 2009, new loans missed estimates and import growth stalled. UBS AG, Bank of America Corp., Citigroup Inc. and JPMorgan Chase & Co. are among banks that have cut their expansion estimates for China.
China Coal Energy Co. retreated 1.6 percent to 9.03 yuan. Yanzhou Coal Mining Co. decreased 1.6 percent to 22.88 yuan. The Chinese coal industry was cut to market weight from overweight at UOB-Kay Hian Ltd.
Morgan Stanley said Chinese stocks are entering a bull market as authorities ease monetary and fiscal policies more vigorously, inflation is brought under control and the property market stabilizes.
“The bear phase for equities has already ended,” Jonathan Garner, an analyst at Morgan Stanley, wrote in a report dated today. Valuations are low relative to Chinese stocks’ history and global peers, he wrote, while “earnings revisions breadth” has stabilized.
-- Editors: Allen Wan, Richard Frost
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