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China Benchmark Stock Index Falls as Economic Growth Slows

Oct. 21 (Bloomberg) -- China’s benchmark stock index dropped the most in a month as banks and industrial companies fell after government data showed consumer price growth accelerated and economic expansion slowed.

Agricultural Bank of China Ltd. tumbled the most since its July debut. An index tracking bank shares snapped an 11-day winning streak as the fastest inflation in 23 months fueled concern policy makers will add to this week’s interest-rate increase. Sany Heavy Industry Co. and China Railway Erju Co. slumped more than 2 percent after the economy grew 9.6 percent in the third quarter, the smallest gain in a year.

“The market probably needs a break at this level as investors try and work out if the economy has bottomed as they had expected,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. “Faster inflation creates doubt over monetary policy.”

The Shanghai Composite Index lost 20.42, or 0.7 percent, to 2,983.53 at the 3 p.m. close, its biggest decline since Sept. 16. The gauge closed at its highest since April 21 yesterday after rallying 27 percent from its low in July on rising capital inflows after lagging behind rallies in other emerging markets. The CSI 300 Index retreated 0.7 percent to 3,374.69 today.

The increase in gross domestic product from a year earlier topped economists’ median 9.5 percent estimate. Consumer prices rose 3.6 percent last month, the statistics bureau said at a briefing in Beijing. That matched the median forecast.

Interest Rates

China on Oct. 19 raised borrowing costs for the first time since 2007 as the central bank sought to avert asset bubbles. The increase comes after policy makers ordered the largest banks last week to set aside more funds as reserves for the fourth time this year and allowed the fastest pace of yuan gains since 2005 in September.

An index tracking financial stocks on the CSI 300 slid 2.4 percent, ending 11 straight days of gains that comprised the longest winning streak since at least July 2007.

AgriBank, the nation’s third-largest by assets, slid 3.4 percent to 2.84. Industrial & Commercial Bank of China Ltd., the nation’s biggest, lost 1.7 percent to 4.51 yuan, the most since June 29. China Merchants Bank Co. fell 3.8 percent to 15.14 yuan from its highest close since April 15.

“There’s much profit to take from financial stocks after such a nice run-up,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Today’s high inflation number has also triggered worries that the central bank will keep raising interest rates.”

Banks Performance

The financial index rebounded 21 percent through yesterday after reaching a four-month low on Sept. 28 as investors speculated this year’s declines by banks were overdone. The gauge is still the second-worst performer among the CSI 300 this year, with a 16 percent loss, after the central bank curbed new lending to cool growth and curb property speculation.

The rally by China’s stocks may lose momentum after the government’s decision to raise interest rates, according to Aberdeen Asset Management Plc. “It could take some hot air out,” said Nicholas Yeo, who helps oversee the China equities fund at Aberdeen Asset.

Industrial companies were the second-biggest contributors to losses on the CSI 300 today. Output rose 13.3 percent in September from a year earlier, the statistics bureau said. That compared with a 13.9 percent gain in August and the median 14 percent estimate in a Bloomberg News survey of 23 economists.

Industrial Companies

Sany Heavy, China’s biggest maker of machinery for handling concrete, slumped 2.4 percent to 40.08 yuan, the biggest decline since Sept. 15. China Railway Erju, a unit of China Railway Group Ltd., dropped 3.1 percent to 9.88 yuan, the most since Sept. 9.

Commodity producers gained, with the index of materials stocks rising 2.4 percent, after metal prices rebounded yesterday. Jiangxi Copper Co. the nation’s biggest producer of the metal, rose 2.6 percent to 45.23 yuan, the highest close since August 2009. The stock has doubled from its low on July 5. Western Mining Co., China’s fourth-largest maker of zinc concentrate, added 2.7 percent to 18.16 yuan.

The London Metal Exchange Index of six metals including aluminum and copper advanced 1.2 percent yesterday, the steepest gain since Oct. 8.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

To contact the editor responsible for this story: Linus Chua at lchua@bloomberg.net

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