China’s stocks fell, dragging the benchmark index to the lowest level in three months, after a report showed China’s manufacturing may shrink for an eighth month in June and the U.S. cut its economic growth estimates.
Jiangxi Copper Co. and China Shenhua Energy Co. the biggest copper and coal producers, declined more than 2 percent on concern demand for commodities will slow. Industrial & Commercial Bank of China (601398) Ltd. paced a retreat for lenders after the 21st Century Business Herald said the four biggest banks saw net deposits decline by a combined 460 billion yuan ($72 billion) in the first two weeks of this month.
The Shanghai Composite Index (SHCOMP) lost 32 points, or 1.4 percent, to 2,260.88 at the close, the lowest since March 29. The measure posted a 2 percent drop in the holiday-shortened week as financial markets are closed tomorrow. The CSI 300 Index (SHSZ300) slid 1.6 percent to 2,512.19. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, fell 0.9 percent in New York.
“Investors have accepted the fact that the economy is going to be bad and stimulus measures will be slow,” said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai. “There’s little impetus to enter the market so stocks will be dragged down in the near term.”
Concerns that a growth slowdown is deepening and Greece will leave the euro area have pushed the Shanghai index down 8.1 percent from this year’s high set on March 2. It’s still up 2.8 percent in 2012 after the central bank reduced borrowing costs this month and lowered lenders’ reserve-requirement ratios three times since November.
China’s manufacturing may contract in June, matching the streak during the global financial crisis in a signal the government’s stimulus has yet to reverse the economy’s slowdown.
The 48.1 preliminary reading for a purchasing managers’ index released by HSBC Holdings Plc and Markit Economics today compares with a final 48.4 for May. A reading above 50 indicates expansion. If confirmed on July 2, it would equal the run of below-50 readings from August 2008 to March 2009.
“Growth is going to be relatively disappointing this year,” Howard Wang, the Hong Kong-based head of JPMorgan Asset Management’s Greater China team, said at a conference in Hong Kong today. “There’s quite a bit of firepower on the monetary side should the government use it. We’re going to assume though that they’re going to be incremental as opposed to flood the system with liquidity.”
A gauge of energy producers in the CSI 300 slid 2.8 percent, the most among 10 industry groups. The materials measure lost 1.8 percent. Shenhua Energy fell 2.3 percent to 23.38 yuan. PetroChina Co., the biggest energy producer, slumped 1.5 percent to 9.12 yuan. Jiangxi Copper declined 3 percent to 24.48 yuan.
The U.S. central bank cut its estimates for growth and said it sees little progress on unemployment during the rest of the year. The Federal Reserve lowered its estimate for 2012 gross domestic product growth to 1.9 percent to 2.4 percent, from 2.4 percent to 2.9 percent in April.
The Fed will expand its Operation Twist program to replace short-term bonds with longer-term debt by $267 billion through the end of 2012. That “should put downward pressure on longer- term interest rates and help to make broader financial conditions more accommodative,” the Federal Open Market Committee said.
Chinese banks’ borrowing costs rose for a third week, the longest stretch in 2012, as a funding squeeze fanned speculation policy makers will relax lenders’ reserve requirements. Shibor, for 1-month yuan loans, climbed 51 basis points in June to 3.48 percent, after 5 months of declines caused by monetary easing.
Industrial Bank Co. retreated 1.5 percent to 12.77 yuan. China Merchants Bank Co. declined 1.2 percent to 10.90 yuan. ICBC, the biggest lender, slid 0.8 percent to 3.91 yuan. The along with Bank of China Ltd. and Agricultural Bank of China Ltd. saw net deposits drop by a combined 460 billion yuan in the first two weeks of June, the 21st Century Business Herald reported, citing an unidentified lender.
The government will cut the minimum requirement on assets under management to $500 million from $5 billion for companies seeking a license under the Qualified Foreign Institutional Investor program, the China Securities Regulatory Commission said in a statement on its website yesterday. The regulator also said it will allow them to invest in the country’s interbank bond market.
QFII reform is “unambiguously good for the Chinese market, for those Chinese companies seeking to finance themselves in the equity market in China,” Bill Maldonado, chief investment officer for Asia Pacific at HSBC Global Asset Management, said at a conference in Hong Kong today.
The iShares FTSE China 25 Index Fund (FXI), the biggest U.S.- listed China exchange-traded fund, lost 0.3 percent to $33.94 yesterdayb, snapping a six-day rally.
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