China’s stocks fell, dragging the benchmark index to a five-month low, as Citigroup Inc. cut the nation’s growth forecast on concern Europe’s debt crisis will reduce demand for exports.
Jiangxi Copper Co., the biggest Chinese producer of the industrial metal, slid to the lowest level since January after Citigroup said China’s economy may grow 7.8 percent this year, compared with a previous estimate of 8.1 percent. China Vanke Co. and Poly Real Estate Co. led a gauge of developers lower after the China Securities Journal said the government should impose a “reasonable” property tax. Citic Securities Co. and Haitong Securities Co. retreated more than 2 percent.
The Shanghai Composite Index slumped 1.6 percent to 2,224.11 at the close, the lowest level since Jan. 16. The CSI 300 Index declined 2.2 percent to 2,456.52. China’s markets were closed for a holiday on June 22. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, gained 0.4 percent at the close in New York.
“Investors remain very concerned about the deteriorating economy and the European situation,” said Cao Xuefeng, an analyst at Huaxi Securities Co. in Chengdu. This month’s interest-rate cut “didn’t seem to boost stocks a lot, as even speculation about more loosening isn’t helping sentiment.”
The Shanghai Composite has fallen 6.2 percent in June, set for the worst monthly performance since March, even as the central bank announced a reduction in deposit and lending rates on June 7 to prevent economic growth from falling below the government’s target of 7.5 percent this year.
The Shanghai gauge trades for 9.7 times estimated profit, compared with the five-year average of 17.7, weekly data compiled by Bloomberg show. The index has risen 1.1 percent since the start of 2012, poised for the best first half in three years.
China’s 2012 gross domestic product estimate was cut at Citigroup to reflect “anemic” domestic activity in the second quarter and further weakening of European demand.
The escalation of Europe’s debt crisis may cause a hard landing as weaker external demand erodes China’s growth by nearly 1 percentage point, Citigroup analysts Shuang Ding and Minggao Shen wrote in a report dated June 22. They said second-quarter growth may slow to 7.3 percent.
Europe is struggling to contain a debt crisis that forced Spain to call for a rescue, making it the fourth euro member to need external funding as borrowing costs surge. European Union leaders will hold a two-day summit starting June 28 on the crisis. Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.
Gauges of energy and materials stocks in the CSI 300 fell more than 3.7 percent, the most among 10 industry groups. Jiangxi Copper slid 3.9 percent to 23.52 yuan. Tongling Nonferrous Metals Group Co. declined 5.1 percent to 19 yuan. Shandong Gold Mining Co. slumped 3.3 percent to 33.38 yuan.
Commodities slumped into a bear market June 21, a day after the Federal Reserve extended its Operation Twist program while refraining from a third round of debt buying known as quantitative easing. The Standard & Poor’s GSCI Spot Index of commodities fell 3.2 percent last week, leaving the gauge down 21 percent from this year’s closing high in February.
A gauge of real estate companies in the Shanghai Composite fell 3.3 percent. China Vanke, the biggest developer, dropped 3.1 percent to 8.75 yuan, Poly Real Estate declined 4.9 percent to 10.94 yuan. Gemdale Corp. slumped 6.4 percent to 6.39 yuan.
China should impose a “reasonable” property tax to ensure the sustainable development of the housing market, according to a State Information Center report published in the China Securities Journal today. China should expand the property tax base while reducing tax rates to help ease high prices, the report said.
Brokerages led losses for financial companies, with Citic Securities, the biggest, losing 2.7 percent to 12.31 yuan and Haitong Securities dropping 4.5 percent to 9.26 yuan.
Chinese manufacturing may shrink for an eighth month in June, according to data last week from HSBC Holdings Plc and Markit Economics, and home values dropped in a record number of cities during May.
Banks are willing to lend but demand for loans is weak, Jing Ulrich, managing director and chairman of global markets for China at JPMorgan Chase & Co., said at a conference in Hong Kong today.
After 13 previous interest-rate cuts, the Shanghai Composite advanced nine times with the average result a 7.5 percent gain, data compiled by Bloomberg and Guotai Junan Securities Co. show.
The index declined four times, all occurring during the midst of the Asian financial crisis in 1998 and the collapse of Lehman Brothers Holdings Inc. in 2008. China may lower banks’ reserve-requirement ratios “soon,” the China Securities Journal reported on its front page today, citing unidentified people.
The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., tumbled 5.6 percent last week to $32.53.
-- Editors: Darren Boey, Allen Wan