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China’s Stocks Fall to 14-Month Low on Policy, Economy Outlook

China’s Stocks Fall to 14-Month Low on Policy
The Shanghai Composite Index lost 1.4 percent to 2,407.70 as of 9:49 a.m. local time, set to close at the lowest level since July 5, 2010. Photographer: Qilai Shen/Bloomberg

China’s stocks fell, dragging the benchmark index to its lowest level in more than 14 months, as mounting concerns over the faltering global economy prompted speculation the government will take steps to support markets.

Bank of Communications Co. dropped to the lowest level in almost seven weeks after the central bank asked lenders to maintain a stable loan-to-deposit ratio during public holidays next month. Gemdale Corp. lost 1.7 percent after the banking regulator was said to be looking into the financing of property developers through trust companies.

The Shanghai Composite Index lost 0.4 percent to 2,433.16 at the 3 p.m. local-time close, the lowest level since July 16, 2010. The CSI 300 Index sank 0.6 percent to 2,669.48. The MSCI All-Country World Index of 45 nations entered a bear market yesterday for the first time in more than two years, after the European debt crisis and threat of a U.S. recession erased more than $10 trillion from equities since May.

“The dim outlook for the global economy has made investors extremely pessimistic,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s no good news worldwide and the announced policies seem to be not strong enough to save the economy from entering recession.”

The Shanghai Composite Index dropped 2 percent this week, extending this year’s loss to 13 percent as the government increased measures to cool inflation that’s at the highest in almost three years. The gauge is down 12 percent since June 30.

Government Support

The gauge has tumbled 20 percent from this year’s peak on April 18, a decline that some investors define as a bear market. Stocks in the gauge trade at 11.2 times estimated profit, the lowest level on record, according to data compiled by Bloomberg.

The Shanghai Composite pared an earlier 1.8 percent loss on speculation the government would step in to support the market. China’s social security fund plans to invest more than 10 billion yuan ($1.6 billion) in the nation’s stock market, Securities Times reported today, citing an unidentified person. Group of 20 nations pledged in a statement late yesterday in Washington to tackle increasing risks to the global economy.

“Speculation on government’s support always works in China’s market, no matter it’s true or not,” Dazhong’s Wu said. “That would help lift the index for the short-term but the market may need several rounds of injections to turn the pessimistic sentiment around.”

European Turmoil

The MSCI All-Country World Index has lost 23 percent since peaking on May 2. Stocks fell yesterday on a Federal Reserve assessment that turmoil caused by Europe’s crisis is taking a toll on the economy and as a measure of Chinese manufacturing weakened. Central bankers and finance ministers will discuss the economic outlook today at annual meetings of the International Monetary Fund and World Bank in Washington.

Jiangxi Copper Co., China’s biggest producer of the metal, slumped 3.3 percent to 28.12 yuan, the lowest close since Aug. 12, 2010. Copper in London slumped as much as 7.3 percent to $7,115.75 a metric ton, the lowest level since August 2010.

China Vanke retreated 0.8 percent to 7.40 yuan. Gemdale slid 1.7 percent to 5.26 yuan. Inquiries on developers’ financing through trust firms by the China Banking Regulatory Commission are part of regular monitoring and aren’t targeting any individual company, a person familiar with the matter said, who declined to be identified because the regulator’s queries were meant to be private.

Shares of Chinese property developers plunged in Hong Kong yesterday, led by Greentown China Holdings Ltd., on concern tightened access to loans will force them to cut prices. Greentown, the largest builder in the eastern province of Zhejiang, said it hasn’t received any notice following a Reuters report that the banking regulator ordered trust companies to report dealings with the developer.

Banks Decline

Bank of Communications slid 0.9 percent to 4.52 yuan, the lowest level since Aug. 8. Agricultural Bank of China Ltd. slipped 0.4 percent to 2.51 yuan.

China’s central bank has asked commercial banks to maintain a stable loan-to-deposit ratio during the National Day holiday which begins on Oct. 1, the Oriental Morning Post reported today, citing unidentified people. The difference of banks’ outstanding deposits on Sept. 30 and on Oct. 8 must not exceed 5 percent, the newspaper said.

“The global economy has lost its balance since the financial crisis,” said Yang Rui, a fund manager at Bosera Asset Management Co., which oversees more than $29 billion. “The market will suffer a hard time at the low levels in the coming two-to-three years.”

Yang, whose $468 million Bosera Balanced Allocation Fund beat 79 percent of its peers in the past five years, is avoiding property, bank and cement shares, on expectations the government is unlikely to ease monetary tightening.

Liquor Prices

Liquor producers fell after the Guangzhou Daily reported the government had asked the companies to stop increasing prices. China’s National Development and Reform Commission has told Kweichow Moutai Co., Wuliangye Yibin Co. and other domestic liquor makers to halt price increases for their products, according to a Sept. 19 statement on the China Alcoholic Drinks Industry Association’s website.

Kweichow Moutai declined 1.8 percent to 194.05 yuan, the lowest since July 14. Wuliangye Yibin dropped 2 percent to 36.43 yuan. Luzhou Laojiao Co. sank 4.4 percent to 39.98 yuan, the biggest drop since May 23.

Yanzhou Coal Mining Co. added 2 percent to 28.69 yuan. China Shenhua Energy Co., the listed unit of China’s biggest coal producer, gained 0.7 percent to 25.86 yuan.

Thermal coal at Qinhuangdao, the nation’s biggest port for the fuel, advanced 0.6 percent last week, the first increase in almost three months, according to the China Coal Transport and Distribution Association. Prices may gain as much as 5 percent by year-end, according to Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd.

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