China’s Stocks Decline to Lowest Level Since March 2009

China’s stocks fell to the lowest level since March 2009 as speculation the government will maintain real-estate curbs overshadowed a State Council plan to develop the nation’s central provinces.

China Vanke Co. (000002) and Poly Real Estate Group Co. paced declines among developers after the official Xinhua News Agency said China must prevent local governments from weakening real- estate controls. Hunan Valin Steel Co. (000932), part-owned by the world’s biggest mill ArcelorMittal, surged to a one-month high as the China News Service said Hunan province’s Changsha city unveiled an 829.2 billion yuan ($130 billion) investment plan.

“Market sentiment is pretty weak and it will take a while for investors to reverse their pessimistic expectations about the economy,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “We’ll probably see more stimulus packages from the government going forward.”

The Shanghai Composite Index (SHCOMP) dropped 0.5 percent to 2,126 at the close, erasing a 0.5 percent gain. The CSI 300 Index (SHSZ300) lost 0.5 percent to 2,347.49. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 0.3 percent in New York yesterday.

The Shanghai index has fallen 14 percent from this year’s high on March 2 amid concern the economic slowdown is deepening. The gauge is valued at 9.5 times estimated profit, compared with the average of 17.5 since Bloomberg began compiling the data in 2006.

Thirty-day volatility in the Shanghai Composite was at 14.2 today, compared with this year’s average of 17.9. About 4.9 billion shares changed hands in the gauge yesterday, the lowest level since Jan. 16.

Property “Fine-tuning”

A gauge of property stocks in the Shanghai Composite fell 1.6 percent today to its lowest close since April 11. Vanke, the nation’s biggest listed property developer, dropped 2.1 percent to 8.91 yuan. Poly Real Estate (600048), the second largest, slid 3.9 percent to 10.72 yuan. China Merchants Property Development Co. retreated 2.8 percent to 22.36 yuan.

China must prevent local government “fine tuning” of property policies from leading to a weakening of controls on the real estate market, according to commentary from Xinhua yesterday. Fine-tuning policies that compromise the central government’s macro control “bottom line” on the real estate market must be stopped, it said.

Daiwa Securities Co. said China’s property curbs are unlikely to be strengthened. The government will continue a balancing role to encourage end-user demand while suppressing investment, speculation, Daiwa analysts wrote in note dated yesterday.

Lower Earnings

Chinese publicly traded companies are required to release first-half earnings results in July and August. Of the 885 companies in the Shanghai Composite, the 30 that reported second-quarter earnings had an average 25 percent profit decline, according to data compiled by Bloomberg. Profit rose 2.8 percent in the first quarter, the data showed.

The statistics bureau is due to release June profits for industrial companies tomorrow. Profits fell 2.4 percent in the first five months this year, according to the bureau.

Hunan Valin, based in southern Hunan province, surged 9.9 percent to 2.56 yuan, the highest close since June 20. Hunan Fazhan Industrial Co. (000722) jumped 10 percent to 8.92 yuan. Hunan Investment Group Co. advanced 2.7 percent to 4.97 yuan.

The central region, which includes Hunan province, is of strategic importance in the nation’s development and the government will stimulate the potential for domestic demand in the central region and further explore its development, the State Council said in a statement yesterday after the market closed.

Changsha Investments

The total value of the Changsha investments, which include an airport and subway lines, amounts to about 150 percent of Changsha’s gross domestic product in 2011 and will take several years to complete, the China News Service said. Changsha, a city of 7 million people, is the capital of Hunan province.

Changsha’s stimulus package is “very large,” and along with the State Council’s plan to promote the economies of the central region, will help the nation’s economic growth rebound in third and fourth quarters, Zhang Zhiwei, an economist at Nomura Holdings Inc., wrote in a report today.

China will expand a trial value-added tax program to 10 additional provinces and cities, according to a statement on the central government’s website yesterday, citing a State Council meeting chaired by Premier Wen Jiabao.

The trial program is expected to reduce corporate taxes by 90 billion yuan this year, Zhu Jianfang, an economist at Citic Securities Co., wrote in a report today. Fiscal stimulus is becoming an important tool to stabilize growth amid economic slowdown, according to the report. Wen this month repeated his call for structural tax changes as the government seeks to stem a six-quarter slowdown in the economy.

Steelmakers advanced on speculation product demand will increase. Baoshan Iron & Steel Co. (600019), the listed unit of China’s second-biggest steelmaker, rose 1.2 percent to 4.16 yuan. Angang Steel Co. gained 0.8 percent to 3.0 yuan.

--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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