China’s Stocks Fall Most in Three Months on Inflation

China’s stocks fell the most among Asian markets after a report showing inflation accelerated more than forecast, limiting room for monetary easing to support an economic recovery.

The Shanghai Composite Index (SHCOMP) slid 1.8 percent to 2,243 at the close, the most since Sept. 20. It dropped 1.5 percent this week, the first decline in six weeks. The CSI 300 Index (SHSZ300) lost 1.9 percent to 2,483.23, led by financial and material companies.

“Inflation is a potential threat to the market,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Though it won’t trigger an immediate interest-rate increase, it will weigh on investors’ sentiment. The market lacks catalysts for more gains in January and needs to consolidate.”

Poly Real Estate Group Co. (600048) plunged 4.5 percent, leading declines for property stocks, after consumer prices rose at the fastest pace in seven months in December. Citic Securities Co. (600030) and Soochow Securities Co. dropped at least 3.9 percent after regulators reprimanded the two brokerages for failing to make timely disclosures. Liquor maker Kweichow Moutai Co. fell after the Hainan Daily reported the province banned government officials from drinking alcohol during business receptions.

The Shanghai Composite had surged 17 percent from an almost four-year low on Dec. 3 through yesterday, while the CSI 300 climbed 20 percent, signaling a bull market, on signs economic growth is picking up. Government data yesterday showed overseas shipments rose 14.1 percent from a year earlier last month, the most since May and more than double the 5 percent median of 40 economists’ estimates.

Inflation Data

The Hang Seng China Enterprises Index (HSCEI) slipped 0.8 percent today. The Bloomberg China-US 55 Index (CH55BN) advanced 1.7 percent in New York yesterday. The yuan strengthened beyond 6.22 against the dollar for the first time in 19 years.

Average trading volumes on the Shanghai index were 22 percent higher than the 30-day average. Thirty-day volatility in the gauge was at 20.1, compared with last year’s average of 17.1. The measure trades at 12.4 times reported earnings, compared with the seven-year average of 21.4, according to data compiled by Bloomberg since 2006.

A gauge of developers in the Shanghai index dropped 3.8 percent today, the most among five industry groups. Poly Real Estate, China’s second largest by market value, lost 4.5 percent to 13.53 yuan. China Merchants Property Development Co. (000024), the third biggest, slid 3.9 percent to 29.01 yuan. Gemdale Corp. fell 4.1 percent to 6.81 yuan.

The consumer price index rose 2.5 percent in December from a year earlier, the National Bureau of Statistics said today in Beijing. That compares with the 2.3 percent median estimate in a Bloomberg News survey of 42 economists and a 2 percent gain in November. Producer prices dropped 1.9 percent, compared with an estimate for a 1.8 percent decline.

Tighter Liquidity

December inflation points to tighter monetary policy, a stronger currency to curb imported inflation, less liquidity and higher rates in the second half of the year, said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.

Inflation may exceed 3 percent next month because the weeklong Chinese New Year holiday falls in February this year after being in January in 2012, said Li Miaoxian, a Beijing- based economist with Bocom International Holdings Co., the investment banking unit of Bank of Communications Co.

December economic data including industrial production and fixed-asset investment as well as a report on fourth-quarter gross domestic product are due on Jan. 18.

Citic Securities, China’s largest brokerage, dropped 3.9 percent to 12.71 yuan. Soochow Securities declined 6.1 percent to 7.42 yuan.

Wuliangye Earnings

Citic Securities was reprimanded by the securities regulator for failing to disclose a drop in profit at SooChow Securities when advising on its initial offering.

Both companies received warning letters from the China Securities Regulatory Commission for not disclosing the earnings drop, which happened before the initial public offering prospectus of SooChow Securities was published, and for not giving additional information about the decline while marketing the shares, the regulator said on its website.

Two phone calls to Raymond Tang, a Beijing-based press officer at Citic seeking comment on the report went unanswered. Staff at Soochow’s board secretary office referred queries about the reprimand to the stock exchange filing when contacted by phone today.

Kweichow Moutai, the biggest baijiu maker, slumped 1.5 percent to 211.26 yuan. Luzhou Laojiao Co. (000568) dropped 1.8 percent to 36.41 yuan. The southern province of Hainan banned government officials from drinking alcoholic beverages during business receptions, Hainan Daily reported yesterday, citing documents issued by the local authorities.

China’s currency strengthened 0.16 percent to 6.2144 per dollar as of 3:29 p.m. in Shanghai and touched 6.2133, the highest level since the government unified official and market exchange rates at the end of 1993, according to the China Foreign Exchange Trade System. Yuan forwards headed for the best week since October 2011.

--Zhang Shidong. Editors: Allen Wan, Ravil Shirodkar

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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