China’s stocks fell for a third day as a cash crunch weighed on equities after banks hoarded cash to meet year-end reserve-ratio requirements and Ping An Insurance (Group) Co. plunged on fundraising plans.
Ping An, China’s second-biggest insurer, slid 5.2 percent on a plan to sell as much as 26 billion yuan ($4.1 billion) of bonds after business expansion brought down its capital adequacy. China Vanke Co. led a decline for developers as cities including Shanghai extended the period limiting home purchases. Chongqing Brewery Co. climbed for the first time in 10 days after its third-biggest shareholder sought to remove the company’s chairman as director.
“The economy and the capital markets are still facing a credit crunch as a result of two years of monetary tightening,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “The economy is experiencing a down cycle. Stocks are not a place to put money until economic growth picks up again.”
The Shanghai Composite Index fell 1.1 percent to 2,191.15 at the close. It rose as much as 1 percent after Premier Wen Jiabao pledged to help exporters and small companies. The CSI 300 Index slid 1.6 percent to 2,339.11. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, jumped 3 percent at the close in New York yesterday.
China’s stock market was an outlier in the region today, with the MSCI Asia Pacific Index advancing 2.1 percent after U.S. builders broke ground in November on the most houses in over a year and German business confidence unexpectedly rose for a second month in December. Housing starts grew 9.3 percent to a 685,000 annual rate, exceeding the highest estimate of economists surveyed by Bloomberg News and the highest level since April 2010, Commerce Department figures showed.
The Shanghai Composite has fallen 6.1 percent in December as concern about an economic slowdown overshadowed the first cut in reserve requirement ratios in three years on Nov. 30. The index trades at an estimated price-earnings ratio of 10.5 times, a record low, according to weekly data compiled by Bloomberg that began to track the multiple since 2006. For the year, the measure is down 22 percent after the central bank raised interest rates three times to curb inflation and exports to Europe slowed because of the region’s debt crisis.
Ping An slumped 5.2 percent to 34.43 yuan. The proceeds from the sale of six-year convertible bonds will be used to boost working capital, Ping An said in a statement.
The sale will erode liquidity in the capital markets and will boost Ping An’s equity base by about 9 percent if the bonds are converted into stocks, Sun Ting, an analyst at Shenyin & Wanguo Securities Co., wrote in a report today.
The seven-day repurchase rate, a gauge of funding availability in the financial system, rose 36 basis points, or 0.36 percentage point, to 3.60 percent as of 3:16 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.
“It’s the year-end effect,” said Ju Wang, a Singapore-based senior strategist at Barclays Capital. “Demand for cash will increase as people prepare for the Chinese holidays and this will tighten liquidity.”
China’s financial markets will be closed on Jan. 2-3 for public holidays. Chinese New Year starts on Jan. 23.
The nation will keep its export policies such as tax rebates “basically stable” next year and the government will mainly use fiscal spending to support “structural tax cuts,” Premier Wen was cited as saying in a statement posted on the central government’s website yesterday. Slowing growth and elevated prices are adding to the difficulty in managing the economy, he said.
A gauge of 34 property stocks in the Shanghai Composite Index dropped 1.9 percent, its first decline in four days. Vanke, the nation’s biggest listed property developer, fell 2.7 percent to 7.30 yuan. Poly Real Estate Group Co., the second biggest, lost 1.7 percent to 9.91 yuan. China Merchants Property Development Co. retreated 3.1 percent to 17.49 yuan.
Shanghai will continue to implement home purchase limits next year, the city government said yesterday, joining Qingdao, Guangzhou and Shenzhen in making similar moves.
Property sales may fall between 3 percent and 6 percent next year and average prices are likely to fall between 1 percent and 4 percent, Soufun Holdings Ltd., the country’s biggest real estate website owner, said in a statement.
Pension Fund Buying
China’s national pension fund invested at least 10 billion yuan ($1.58 billion) in 20 stock funds last week, Shanghai Securities News reported today, without saying where it got the information. Dai Xianglong, chairman of the National Council for Social Security Fund, suggested that local social security funds be allowed to buy equities, the newspaper said yesterday.
Chongqing Brewery gained 0.7 percent to 31.61 yuan. The beermaker and medicine company agreed to hold an extraordinary general meeting on Feb. 7 to discuss a proposal by Dacheng Fund Management Co. to remove Chairman Huang Minggui as director, the company said in a statement.
The shares slumped by the daily limit of 10 percent in each of the past nine days after the company released on Dec. 8 a report on a Hepatitis B vaccine it is researching. The vaccine may be a “high risk” and “capital intensive” investment, Chongqing Brewery said in the report.