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China Stocks Fall Most in Week on Lending Concern

China’s stocks fell, capping the benchmark index’s biggest loss in a week, as concern that new bank lending isn’t picking up overshadowed a rally for airlines.

China Citic Bank Corp. and Huaxia Bank Co. led declines for financial companies, sliding at least 1.2 percent. Baoshan Iron & Steel Co., the largest-listed steelmaker, lost 3.1 percent after reporting a 14 percent drop in first-half profit. China Eastern Airlines Corp., the second-biggest domestic carrier, surged by the daily limit in Shanghai on the prospect it will benefit from an aviation investment fund.

The Shanghai Composite Index (SHCOMP) fell 0.5 percent to 2,229.27 at the close, the biggest loss since Aug. 14. Concerns about the strength of the recovery have grown after data this month showed the weakest credit growth since 2008 and an unexpected slowdown in industrial output. The nation’s four biggest banks made new loans of about 56 billion yuan ($9.1 billion) in the first 17 days of August, Caixin reported Aug. 22, without citing anyone.

“We see a slight correction as data wasn’t good recently,” said Mao Sheng, an analyst for Huaxi Securities Co. “Companies with bad earnings are being dragged down too. Investors are avoiding the cyclical stocks.”

The CSI 300 Index fell 1 percent. The Hang Seng China Enterprises Index (HSCEI) advanced 0.5 percent, bolstered by a 4.3 percent gain for China Petroleum & Chemical Corp. (386) after the refiner reported a jump in profit. The Bloomberg China-US Equity Index rose 0.2 percent on Aug. 22.

Lending Concerns

China Citic Bank retreated 1.2 percent, Huaxia Bank dropped 1.8 percent. Ping An Bank Co. fell 1.4 percent.

While the International Monetary Fund has urged China to curb its credit expansion, last month’s loan figures sparked investor concern that growth in the world’s second-largest economy will falter without monetary stimulus. New local-currency loans totaled 385.2 billion yuan in July, the People’s Bank of China said Aug. 13. That compared with the median estimate of 780 billion yuan.

A slowing of increases in bank lending could undermine efforts to sustain growth, Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB, wrote in a note to clients.

Baoshan Steel fell the most since January after the company reported a first-half net profit of 3.15 billion yuan, compared with 3.7 billion yuan a year earlier.

The Shanghai measure climbed for a sixth week last week, extending gains to 12 percent since mid-March, amid speculation China will reduce government ownership of state-owned enterprises and a link between the exchanges in Hong Kong and Shanghai will fuel fund inflows.

Stocks Outlook

Trading volumes in the Shanghai index were 3.6 percent higher the 30-day average, according to data compiled by Bloomberg. The gauge is valued at 8.2 times 12-month projected earnings, compared with 7.3 for the Hang Seng China index.

Chinese stocks, on pace for their best quarterly gain in a year, are still in the “early” stages of a rally, according to Marketfield Asset Management LLC’s Michael Shaoul.

Marketfield, which manages $18.5 billion, is bullish on Chinese equities amid optimism the government will take more steps to boost Asia’s biggest economy, Shaoul said. President Xi Jinping is trying to avoid a slowdown in output as he seeks to increase the contribution from services to growth, while reducing reliance on the credit-driven construction that has propelled expansion in the past.

“We would expect to see the government and the central bank bring in stimulus measures favoring state-owned enterprises, which is quite bullish,” Shaoul said by phone from New York on Aug. 20. “What they don’t seem to want to do is to re-stimulate real estate itself. You might even start to see retail money redirected to equities after years of chasing real estate.”

Airlines Rally

China Eastern jumped 10 percent today in Shanghai and rose 4.6 percent in Hong Kong. China Southern Airlines Co., the largest domestic carrier, gained at least 2.6 percent in the two cities. Beijing Capital International Airport Co. jumped 8.3 percent in Hong Kong.

Capital Airports Holding Co., Hainan Airlines Holdings Group and some funds set up a civil-aviation investment fund, which plans to raise 20 billion yuan in the first phase, the China Business Journal reported Aug. 23, without citing anyone. The fund will invest in airport construction and aviation economic zones in the near term, the newspaper reported, citing an unidentified person.

“The index is being pulled up by the aviation stocks such as Beijing Airport and China Eastern on the civil aviation investment fund as there are just a few listed airline stocks so investors are speculating who will benefit,” said Wei Wei, an analyst at West China Securities in Shanghai.

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

To contact the editors responsible for this story: Michael Patterson at mpatterson10@bloomberg.net Allen Wan, Phani Varahabhotla

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