China’s stocks declined the most in five weeks, led by financial companies and commodity producers, as the slowest increase in the nation’s money supply on record underscored risks of a deeper economic slowdown.
Poly Real Estate Group Co. and Industrial Bank Co. fell more than 3 percent as a gauge of financial shares posted its biggest loss in a month, while the one-year interest-rate swap dropped as much as eight basis points to a one-month low. China Shenhua Energy Co., a unit of the nation’s largest coal producer, slid 2.4 percent, while Sinopec Shanghai Petrochemical Co. lost 1.8 percent. China Mobile Ltd. slumped in Hong Kong.
The Shanghai Composite Index (SHCOMP) sank 1.4 percent to 2,101.60 at the close, the biggest retreat since March 10. Stocks extended losses after data showed M2, China’s broadest measure of money supply, rose 12.1 percent in March from a year earlier, compared with 13.3 percent in February. New yuan loans were 1.05 trillion yuan ($169 billion), topping economist estimates of 1 trillion yuan.
“Investors are a bit worried because M2 is quite low,” Zhang Haidong, an analyst at Tebon Securities Co., said by phone in Shanghai. “New loans may be better than expected by a little, but it’s still not considered good data; we still think liquidity is very tight.”
The Hang Seng Index retreated 1.6 percent. Both that gauge and the Shanghai Composite today erased gains spurred by China’s April 10 announcement that limited cross-border stock trading will be allowed through exchanges in Shanghai and Hong Kong.
The Hang Seng China Enterprises Index (HSCEI) of Chinese shares in Hong Kong sank 2.1 percent. The CSI 300 Index retreated 1.7 percent as a gauge of financial shares declined 2.3 percent in a third day of losses.
Poly Real Estate tumbled 3.5 percent. Industrial Bank retreated 3 percent and Huaxia Bank Co. slid 2.7 percent.
Aggregate financing, China’s broadest measure of credit, was 2.07 trillion yuan, compared with the 1.85 trillion yuan median projection in a Bloomberg News analyst survey and down from 2.55 trillion yuan a year ago.
The one-year rate swap, the fixed payment needed to receive the floating seven-day repurchase rate, fell seven basis points to 4.05 percent. It reached 4.04 percent, the lowest level since March 14.
“Without a reserve-requirement ratio cut, M2 growth is likely to slow further, with GDP growth possibly dropping below 7 percent in the second or third quarters,” Zhang Zhiwei, chief China economist at Nomura Holdings Inc. in Hong Kong, wrote in a note today. He forecast ratios will be lowered 50 basis points in the next two months, and again in the third quarter.
Zhou Xiaochuan, the central bank governor, said last week that the nation needs only minor policy adjustments when growth is within a normal range, adding to signals that the government will avoid taking broader action for now to counter the slowdown. Premier Li Keqiang said last week that the government won’t adopt “short-term and strong stimulus policies in response to temporary fluctuations in the economy.”
Indexes of material and energy producers dropped at least 1.4 percent. Shenhua Energy declined for a third day while BBMG Corp., a cement producer, lost 5.8 percent.
China’s economy grew 1.5 percent in the first quarter from the previous three months, according to the median estimate in a Bloomberg News survey ahead of data released tomorrow, down from 1.8 percent in the fourth quarter. That indicates a sharper deceleration than the median projection for 7.3 percent growth from a year earlier, down from 7.7 percent.
The Shanghai Composite rallied 3.5 percent last week, while the Hang Seng Index jumped 2.2 percent. The exchange tie-up is part of efforts to free up capital flows in the world’s second-biggest economy, after the Communist Party pledged in November the most sweeping package of reforms since at least the 1990s and in March widened the yuan’s trading band.
Today’s losses dragged the Shanghai Composite down 0.7 percent this year. The measure is valued at 7.7 times 12-month projected earnings, compared with the five-year average multiple of 12, data compiled by Bloomberg show. The Hang Seng Index has lost 2.7 percent in 2014.
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