China’s stocks fell, dragging the benchmark index down by the most in a week, on concern proposed rules for banks may curb credit growth and speculation intensified the government won’t loosen property restrictions.
China Citic Bank Corp. led declines for lenders after a China Banking Regulatory Commission official said the nation plans to retain a cap on loans at 75 percent of deposits and may add further requirements that constrain credit growth under draft rules. Sany Heavy Industry Co. extended the biggest machinery maker’s losses to a fourth day amid concern demand may falter. China’s recent increase in home prices was the result of a “misinterpretation” of the nation’s economic policies, a government think tank researcher said.
The Shanghai Composite Index fell 26 points, or 1.2 percent, to 2,201.35 at the close, the biggest drop since June 25. The CSI 300 Index slid 1.4 percent to 2,430.37. U.S. financial markets were closed yesterday for a national holiday.
“Investors are concerned about company earnings in the second quarter and there are expectations of further cuts in profit forecasts,” said Chen Liqiu, a strategist at Jianghai Securities Co. in Shanghai. “They are expecting property curbs to ease and it turns out it may be quite the opposite so this is dragging on sentiment.”
The Shanghai gauge has fallen 1.1 percent this month, adding to a June plunge of 6.2 percent, on concern the government isn’t doing enough to stem an economic slowdown. The gauge, which has advanced 0.1 percent this year, trades at 9.6 times estimated profit, compared with the average of 17.5 since Bloomberg began compiling the data in 2006.
China’s proposed rules for banks will include an existing 75 percent cap on deposits that can be used for lending as well as new requirements that may constrain credit growth, a senior official at the banking regulator said, asking not to be named because the discussions aren’t public.
China Citic Bank declined 0.5 percent to 4.02 yuan, while Industrial Bank Ltd. slid 1 percent to 13.01 yuan. A gauge of financial stocks in the CSI 300 that includes banks and property companies has climbed 8.7 percent this year, the second most among 10 industry groups, on speculation the government would loosen lending controls and reverse property curbs as Europe’s debt crisis deepens the economic slowdown.
Of the 24 property companies in Shanghai’s property gauge, 18 fell today even as the measure rose 0.1 percent. China Vanke Co., the largest developer, jumped 3.5 percent to 9.29 yuan after it reported increased sales in June. China’s new home prices rose for the first time in 10 months as the government eased its monetary policies to bolster the economy, SouFun Holdings Ltd., the nation’s biggest real estate website owner, said this week.
Sany Heavy Drops
“The current rise in house prices has to a large extent been a result of misinterpretation of the government’s policies to stimulate the economy, an increase in real estate speculation and excessive concerns among ordinary homebuyers that prices will continue to rise,” Yi Xianrong, a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences, wrote in a commentary in the China Daily today.
The government shouldn’t relax property controls as the task of ensuring long-term stable, healthy development of the real estate market hasn’t been achieved, according to a commentary in the People’s Daily written by Wang Wei, who wasn’t identified.
Sany Heavy dropped 1 percent to 12.72 yuan. Company management told Credit Suisse Group AG it had reduced headcount, though not by the 30 percent as reported in local media, analyst Yang Y. Song wrote in a note dated yesterday.
“Sany’s layoffs are a signal that demand is weakening and the economy is softening,” said Jianghai’s Chen. Employee turnover hasn’t increased from the usual rate, Sany Heavy’s board secretary Xiao Youliang said by phone, denying it cut stuff because of the slowdown. Zoomlion Heavy Industry Science and Technology Co., the second-largest machinery maker, lost 2.6 percent to 9.24 yuan.
UBS AG said there are downside risks to its economic growth forecasts for China. June economic data will show second-quarter growth of below 7 percent quarter-on-quarter and 7.6 percent year-on-year, the lowest since the first quarter of 2009, Tao Wang, an economist at UBS, said in report. China’s GDP data is scheduled to be released on July 13.
With parts of the Chinese economy showing signs of stabilizing such as the property industry, the government will not conduct major new policy easing and will instead continue existing measures such as another cut in reserve-requirement ratios for banks “soon” and reduction in interest rates in the third quarter, UBS said.
The central bank announced its first cut in rates in three years on June 7 and lowered reserve-requirement ratios three times since November.
Jianghai’s Chen said selling before Citic Heavy Industries Co. starts trading in Shanghai tomorrow, was also hurting the stock market. The heavy machinery unit of China’s largest conglomerate issued up to 685 million shares at a price of 4.67 yuan each.
“In prepping for the big IPO tomorrow, some investors are selling today to buy Citic Heavy tomorrow,” Chen said.
-- Editors: Allen Wan, Richard Frost