China’s stocks fell, led by property developers and brokerages, as valuations at a seven-month high raised concern a six-week share rally was excessive.
Poly Real Estate Group Co. and Gemdale Corp. (600383) lost at least 2.9 percent on speculation the government will introduce real- estate taxes nationwide. Citic Securities Co., which has jumped 34 percent since Dec. 3, fell 1.7 percent to lead brokerages lower. Liquor maker Kweichow Moutai Co. retreated the most in three weeks after canceling a policy punishing retailers for cutting prices. A government report showed China’s foreign direct investment slid 4.5 percent in December.
The Shanghai Composite Index (SHCOMP) fell 0.7 percent to 2,309.50 at the close. The index traded at 12.8 times reported earnings yesterday, the highest since May, according to data compiled by Bloomberg. It has risen 18 percent from an almost four-year low on Dec. 3 on speculation economic growth is picking up.
“There’s no major negative news and it’s just some profit- taking,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “Financial stocks were the first to advance in the upcycle, so they are leading the decline now. We have already gotten out of the long-term downward trend, so the fall today is only temporary. People are used to taking profits whenever they see some gains.”
The CSI 300 Index (SHSZ300), which entered a bull market earlier this month with a 20 percent gain from the Dcember low, lost 0.7 percent to 2,577.09. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong slid 1.3 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, dropped 0.6 percent in New York yesterday. Average trading volumes for the Shanghai index were 37 percent higher than the 30-day average. Thirty-day volatility was at 21, compared with last year’s average of 17.1.
A gauge of property stocks in the Shanghai index slid 2 percent, the most among the five industry groups. Poly Real Estate, the second-biggest developer, lost 3.4 percent to 13.56 yuan. Gemdale slumped 2.9 percent to 6.80 yuan. The property measure is the biggest gainer among the groups over the past year, surging 37 percent.
China should “gradually” establish a property taxation system that covers trading and ownership, Premier Wen Jiabao said yesterday. Many Chinese cities are preparing to introduce property tax trials, the China Securities Journal reported on Nov. 16, citing unidentified people.
“We still believe that the property tax is the policy most likely to be launched in 2013,” Haitong Securities Co. analysts wrote in a report today, referring to an expansion to the property tax trials.
In its more than two-year effort to curb the property market, the government has imposed a property tax for the first time in Shanghai and Chongqing, raised down-payment and mortgage requirements, increased building of low-cost social housing and placed home-purchase restrictions in about 40 cities.
China’s foreign direct investment declined for the first full year since 2009 as economic growth slowed and manufacturers relocated to markets with cheaper labor, contrasting with outbound spending that surged to a record.
Inbound FDI dropped 4.5 percent in December from a year earlier to $11.7 billion, the 13th decline in 14 months, according to Ministry of Commerce data. FDI inflows compare with a 5.4 percent drop in November to $8.3 billion. For the full year, inflows fell 3.7 percent to $111.7 billion, while China’s non-financial investment abroad increased 28.6 percent to $77.2 billion.
“The FDI data didn’t have a big impact as stocks have gained considerably so investors are taking profits now,” Zhang Lei, an analyst with Minsheng Securities Co., said by phone from Beijing. “This is only temporary, I don’t think our uptrend has ended yet.”
Citic Securities, the biggest-listed brokerage, fell 1.7 percent to 13.40 yuan. Haitong Securities dropped 2.1 percent to 10.06 yuan. Haitong has jumped 27 percent since Dec. 3. Brokerages have rallied on speculation the stock rally may increase earnings and the government will boost the amount of money foreign investors can spend to buy domestic shares.
China Railway Group Ltd. (601390) slid 2.7 percent to 3.29 yuan and China Railway Construction Corp. fell 2.8 percent to 6.20 yuan. The stocks had surged at least 29 percent in the past three months through yesterday on speculation urban development will boost spending on public transport.
Chinese rail and construction machinery stocks are “yesterday’s heroes, and will not do well as China moves past its great investment boom,” analysts Julian Bu and Zhi Aik Yeo said in a Jan. 14 report.
Moutai declined 2.3 percent to 206 yuan, the most since Dec. 24. The biggest maker of baijiu liquor canceled a policy that penalized retailers which lowered prices with quota cuts, spokeswoman Li Hongfang said by phone yesterday. The policy didn’t comply with anti-trust laws, Li said.
A measure of health-care companies rose 1.2 percent, the biggest gainer among 10 industry groups in the CSI 300. The sub- index has rallied 8.6 percent this year, making it the best performer. Shandong Donge-E E-Jiao Co., which makes traditional Chinese medicine, rose 5.8 percent to 46.35 yuan. Kangmei Pharmaceutical Co. surged 2.5 percent to 14.84 yuan.
“Health stocks are boosted by concerns about the H1N1 flu,” Minsheng’s Zhang said. A total of 360 cases of the flu were reported between Dec. 1 and Jan. 6, including two deaths, prompting health officials to issue a flu shot warning, the China Daily reported today.
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