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China’s Stocks Fall to 4-Month Low on Growth, Inflation Concerns

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June 13 (Bloomberg) -- China’s stocks dropped, driving the benchmark index to a more than four-month low, after lending slumped in May and money supply grew at the slowest pace since 2008, adding to signs the economy is cooling.

China Vanke Co., the nation’s biggest developer, led losses for real estate companies. Chongqing Changan Automobile Co., the partner of Ford Motor Co. and Mazda Motor Corp., slid to a one-year low after sales dropped in May. Stocks also fell before the release of economic data tomorrow that may show industrial output is slowing as inflation accelerates.

“China’s economy is facing stagflation with economic growth slowing and inflation remaining at high levels,” said Xia Chun, a fund manager at Bosera Fund Management Co., which oversees more than $17 billion. “Investors can’t be too optimistic about the outlook for the A-share market, as the economic slowdown will hurt companies’ earnings.”

The Shanghai Composite Index retreated 4.76 points, or 0.2 percent, to 2,700.38 at the 3 p.m. local-time close, the lowest since Jan. 25, and extending a 0.8 percent weekly loss. The CSI 300 Index slipped 0.4 percent to 2,950.35.

The Shanghai Composite has plunged 12 percent from this year’s high on April 18 amid concern growth in the world’s second-largest economy is slowing after the central bank raised the reserve-requirement ratio for banks 11 times and boosted interest rates four times since early 2010 to cool inflation. Some investors refer to a drop of 10 percent or more as a correction. The stock gauge has fallen 3.8 percent this year, extending 2010’s 14 percent decline.

Stock Valuations

Companies in the index trade at an average 12.5 times estimates for this year’s profit, the lowest since October 2008, according to weekly data compiled by Bloomberg.

China Vanke lost 1.3 percent to 7.90 yuan. Gemdale Corp. retreated 1.2 percent to 5.79 yuan.

China’s lending tumbled in May and money supply grew at the slowest pace since 2008, adding to signs that the world’s second-biggest economy is cooling.

Loans were 551.6 billion yuan ($85 billion), less than the 650 billion yuan median estimate in a Bloomberg News survey of 20 economists and 639 billion yuan a year earlier. M2, the broadest measure of money supply, rose 15.1 percent, the People’s Bank of China said on its website.

Industrial production growth may have slowed to 13.1 percent in May from 13.4 percent in April, according to a Bloomberg economist survey. Inflation may have accelerated to 5.5 percent from 5.3 percent. Both reports are due tomorrow.

‘Hard Landing’

Inflation in June may exceed 6 percent, the China Securities Journal reported today, citing Zhang Zhuoyuan, an economist at the Chinese Academy of Social Sciences. Rapid investment growth and excessive lending are fueling inflation, according to the report.

China faces the risk of a “hard landing” after 2013 as efforts to boost growth through investment lead to excess capacity, Nouriel Roubini, the New York University professor who predicted the global financial crisis of 2007-2009, said in Singapore on June 11.

China’s current challenge is to maintain growth and curb price gains ahead of a leadership change next year, Roubini said. Officials may use administrative steps and price controls as well as raising rates further and allowing currency appreciation if inflation becomes a bigger problem, he said.

Automakers, Airlines

Chongqing Changan declined 0.9 percent to 8.68 yuan, its lowest close since July 5, 2010. The automaker said it sold 123,773 vehicles in May, down from 128,978 units a year earlier.

Other automakers also fell. SAIC Motor Corp., China’s largest automaker by market value, lost 1 percent to 16.90 yuan. Beiqi Foton Motor Co. retreated 2.4 percent to 8.14 yuan, a fifth day of declines.

China’s auto industry had its recommendation reduced to “neutral’ at Guotai Junan Securities Co., which said higher raw-material costs and price cuts will erode earnings. The brokerage also lowered its estimate for the nation’s auto-sales growth this year to 5 percent from 10 percent, analyst Chen Xiwei wrote in a report today. Guotai Junan didn’t say what the previous rating for the industry was.

Air carriers fell on concern competition from high-speed rail will hurt earnings. China Southern Airlines Co., the nation’s largest carrier, dropped 1.4 percent to 7.31 yuan, the lowest close since Sept. 2. China Eastern Airlines Corp. retreated 1.8 percent to 5.04 yuan. Air China Ltd. lost 2.1 percent to 8.97 yuan.

Beijing-Shanghai travelers will be able to buy coach-class tickets on a bullet-train line opening later this month for a less-than-expected 555 yuan, boosting the threat to local airlines on their busiest route.

Ticket Prices

One-way trips in the two different premium classes will cost from 935 yuan and 1,750 yuan on 300 kilometers per hour (186 miles per hour) services, Vice Rail Minister Hu Yadong told reporters today in Beijing. Zhao Jian, a professor at Beijing Jiaotong University, which specializes in railways, said this month that standard tickets would likely cost more than 600 yuan.

Aluminum Corporation of China Ltd. led gains by domestic rare-earth producers after the Shanghai Securities News reported. said China may select three rare-earth companies to lead restructuring of the industry in the nation’s south.

Aluminum Corp. of China, known as Chalco, jumped by the daily 10 percent limit to 11.55 yuan. Rising Nonferrous Metals Share Co. advanced 6 percent to 73.23 yuan and Minmetals Development Co. climbed 10 percent to 37.99 yuan.

The rare-earth producers may be announced at an industry meeting held this week, the report said, without saying where it got the information.

The Shanghai Composite may rally to 3,200 in the second half of the year as economic growth may pick up and inflation peak, according to China International Capital Corp.

The investment bank recommends companies with ‘‘low” valuation and “stable” earnings growth such as machinery, cement and automakers, analysts led by Hou Zhenhai wrote in a report dated today.

To contact Bloomberg News staff for this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net