Most China Stocks Fall on Property Curb, Manufacturing Concerns

Most Chinese stocks fell after a manufacturing gauge declined and on speculation the government will announce property curbs. A rally for energy shares almost erased a loss of as much as 1.3 percent for the benchmark index.

China Vanke Co. and Poly Real Estate Group Co., the nation’s two biggest developers, slid at least 3 percent. New China Life Insurance Co. dropped the most since September after Zurich Insurance Group AG sold its entire stake. Air China Ltd. (601111) paced gains for carriers for a second day. PetroChina Co. and Yanzhou Coal Mining Co. led a rally for oil and coal companies.

About five stocks fell for every three that rose on the benchmark Shanghai Composite Index, which slipped less than 0.1 percent to 2,205.77 at the close. A Chinese manufacturing gauge known as the flash PMI declined for the first time in four months. Finance Minister Lou Jiwei told the People’s Daily that the government will increase taxes for owning properties.

“There’s concern about more curbs in the property market,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “With property prices going up and talk of higher taxes, there are a lot of concerns and uncertainty about how taxes are going to be implemented. The flash PMI didn’t help sentiment.”

The Hang Seng China Enterprises Index (HSCEI) slid for the first time in six days, losing 0.9 percent to 11,337.30 at 3:51 p.m., after minutes from the U.S. Federal Reserve’s last meeting signaled U.S. stimulus may be reduced in coming months. The CSI 300 dropped 0.6 percent to close at 2,409.99.

Manufacturing Report

The Shanghai index had gained 3 percent this month through yesterday after the government pledged to ease the one-child policy and boost private investment as part of the biggest package of economic reforms since the 1990s. The measure trades at 8.7 times projected profit, compared with the five-year average multiple of 12.5, according to data compiled by Bloomberg. Its trading volumes were 18 percent above the 30-day average for this time of day, data showed.

The preliminary 50.4 reading in November for a Purchasing Managers’ Index released by HSBC Holdings Plc and Markit Economics, known as the flash PMI, compared with a 50.8 median estimate from analysts surveyed by Bloomberg News. The final number for October was 50.9, and levels above 50 indicate expansion.

Slower manufacturing gains would add challenges for Premier Li Keqiang in carrying out a reform package that includes loosening controls on interest rates and giving farmers more land rights. Expansion headwinds may intensify after last month’s slowdown in credit growth that suggests Li is trying to contain financial risks as home prices surge.

‘Taking Profits’

“The market is taking profits after gains from the past few days on reforms by the government,” said Zhang Gang, strategist at Central China Securities in Shanghai. “There’s currently a lack of further drive, but it’s only temporary. The economy is already stable and there will be more news on the implementation of reforms so further downside is unlikely.”

A gauge of financial companies in the CSI 300 slid 1 percent, the second-most among 10 industry groups. New China Life, the nation’s third-largest life insurer by premium income last year, dropped 3.2 percent in Shanghai and 1.3 percent in Hong Kong. Zurich Insurance sold its entire stake in New China Life for $943 million, according to deal terms obtained by Bloomberg News, with Swiss Re Ltd. (SREN) agreeing to buy just over half of the stock.

China Vanke fell 3 percent to 8.83 yuan while Poly Real Estate retreated 3 percent to 8.96 yuan. While increasing taxes for owning properties, the government will cut taxes and fees for property construction and transactions, Finance Minister Lou said in the interview with the People’s Daily.

Higher Taxes

China may also use a higher tax rate in its property tax trials and increase “significantly” the scope of residence properties that must pay the tax, the China Securities Journal reported today. The cities of Shanghai and Chongqing have already started experimenting with property taxes.

A measure of energy companies in the CSI 300 rose 1.3 percent, the most among the industry groups. The sub-index’s price-to-book ratio is at 14.5 times, compared with a five-year average multiple of 16.5. PetroChina, the nation’s biggest oil company, gained 1.7 percent to 8.03 yuan, while Yanzhou Coal Mining Co. surged 3 percent to 10.17 yuan.

Goldman Upgrade

“The economy is not doing too bad and reforms may be happening next year so there are not many reasons to keep selling,” said Xu Shengjun, an analyst at Jianghai Securities Co. in Shanghai. “The downside is very limited as risks have been removed. Investors will look at cheap blue chips to buy such as the coal and energy stocks.”

Air China gained 8.8 percent in Hong Kong and 2.2 percent in Shanghai amid speculation the nation’s airlines will benefit from yuan appreciation and the opening up of airspace that may ease traffic congestion. The Shanghai Securities News reported yesterday China may issue airspace management rules as early as the end of this year. The People’s Bank of China will broaden the yuan’s daily trading limit, Governor Zhou Xiaochuan said this week, without giving a timeframe.

“I think one thing on top of my mind is PBOC’s widening the band on currency exchange rates, as the RMB appreciates more, it’s obviously beneficial for airlines,” says Patrick Xu, Hong Kong-based analyst with Barclays. “There talk about the reform of airspace. That helps share prices.”

Goldman Sachs Group Inc. upgraded China’s stocks to overweight and boosted its forecasts for the nation’s economic growth and the yuan next year. The full document from the top-level Communist Party meeting has “reinvigorated” market expectations on reform and China’s longer-term growth prospects, strategists including Timothy Moe wrote in a report.

Goldman Sachs favors reform beneficiaries and recommends stocks that revolve around the theme of mass-market consumption, healthcare, brokers and defense. It is also overweight Chinese banks which are “trading at very low absolute valuations.”

The Bloomberg China-US Equity Index slid 0.9 percent in New York yesterday, while the db X-trackers Harvest CSI 300 China A-Shares Fund lost 0.7 percent.

To contact the reporter on this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Michael Patterson at mpatterson10@bloomberg.net

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