China Vanke Co., the nation’s biggest developer, sank the most in a month. Hisense Electric Co. dropped 3.3 percent to lead losses by household appliance makers. BBMG Corp., a cement producer, declined to its lowest level since March 18. China Molybdenum Co. lost 5.2 percent as rare-earth companies slid.
The Shanghai Composite Index (SHCOMP) retreated 0.7 percent to 2,024.83 at the close, while the Hang Seng China Enterprises Index (HSCEI) fell 0.5 percent. China’s shares capped the longest losing streak in five weeks as declining home prices overshadowed gains in manufacturing indexes and government plans to cut reserve requirements for some lenders.
“Fundamentals are still weak and the government is unlikely to unleash huge stimulus or move to a loose monetary policy,” said Tebon Securities Co. analyst Zhang Haidong in Shanghai. “The magnitude of the decline may not be large though, given low valuations. Shares may rebound after bad news is digested.”
The Shanghai Composite trades at the cheapest level relative to the MSCI Emerging Markets Index on record, according to data compiled by Bloomberg. The Chinese index is valued at 9.9 times reported earnings, compared with 13 for MSCI’s developing measure.
Authorities are contending with a property slump that threatens growth while they try to sustain efforts to limit shadow banking, pollution and corruption. Chinese President Xi Jinping said last month the nation needs to adapt to a “new normal” in the pace of expansion.
The Shanghai Property Index dropped 1.1 percent, taking its loss this year to 5.6 percent. China Vanke retreated 2.4 percent. Poly Real Estate Group Co. declined 2.8 percent.
SouFun Holdings Ltd., the country’s biggest real estate website owner, said May 30 that China’s home prices fell month-on-month in May for the first time since June 2012.
Shares of companies whose sales are tied to home purchases also retreated. Hisense Electric (600060) slid to its lowest level since January 2013. Qingdao Haier Co., a white-goods maker, sank 2.9 percent. Gree Electric, which manufactures air conditioners, dropped 1.7 percent. BBMG slipped 1.6 percent.
Risks from a weaker property market will spill over to other related industries including the financial sector, Citic Securities analysts led by Mao Changqing wrote in a strategy report. The government is unlikely to have “all-out” loosening of money policies, while the stock market will “seek bottom” in the second half of 2014.
The world’s second-largest economy is projected to grow 7.3 percent this year, which would be the weakest pace since 1990, according to a survey of analysts in May. Expansion slowed to 7.4 percent in the first quarter from a year earlier, compared with 7.7 percent in the previous period.
The Purchasing Managers’ Index increased to 50.8 in May, the statistics bureau said June 1. April’s reading was 50.4, with numbers above 50 indicating expansion. The State Council said May 30 it will cut the reserve-requirement ratio for lenders that have extended a certain amount of loans to rural borrowers and smaller companies. Chinese markets were closed for holidays on Monday.
“There was a lot of good news over the long weekend and yet the market still declined at the close yesterday, showing a lack of confidence among investors,” Zhou Lin, an analyst at Huatai Securities Co., said by phone in Nanjing. “That’s exacerbating declines today as investors grow more concerned about prospects for the economy.”
Rare-earth companies fell. China Molybdenum sank the most since May 15. Jinduicheng Molybdenum Co. retreated 4.4 percent.
As part of its pollution clean-up, China, which controls 90 percent of the global market for rare-earths, is studying the introduction of new taxes and regulations for rare earths in the second half of the year.
Watchers of the People’s Bank of China are betting policy makers won’t allow a repeat of last year’s record credit crunch as they nurse an economic recovery.
The seven-day repurchase rate, a gauge of interbank funding availability, will average 3.5 percent in June, 331 basis points lower than a year earlier, according to the median estimate of 21 analysts and traders surveyed by Bloomberg. The benchmark was fixed at 3.21 percent yesterday. Fifteen forecasters said the PBOC will grant loans to banks to allow them to extend credit, while 14 see the resumption of reverse repurchases, or securities-buying operations that were halted in January.
Quarter-end cash demand and a crackdown on off-balance-sheet lending combined to push the repo rate to a record 10.77 percent on June 20 last year, worsening debt delinquencies across the financial system.
To contact the reporter on this story: Weiyi Lim in Singapore at firstname.lastname@example.org