China’s stocks fell for the first time in nine days on concern the government may introduce measures to curb gains in property prices and after a rally for the benchmark index drove valuations to 17-month highs.
China Minsheng Banking Corp. slumped 6 percent, paring gains since Dec. 3 to 78 percent and sending a gauge of banks and other financial stocks to its biggest loss among industry groups. China Vanke Co. and Poly Real Estate Group Co. led declines for property developers after the China Securities Journal said some cities may slow approvals of new home sales.
The Shanghai Composite Index fell 0.7 percent to 2,418.53 at the close, snapping an eight-day, 6.3 percent rally. Still, the index has risen 23 percent from a three-year low on Dec. 3 on signs economic growth is accelerating and as regulators approved more investment quotas for foreign investors.
“Profit-taking pressure is building up after the big rally, particularly for banks,” said Li Jun, a strategist at Central China Securities Co. in Shanghai. “Going forward we need to see earnings growth to keep the rally carrying on.”
The CSI 300 Index slid 0.6 percent to 2,759.87, while the Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong lost 1.3 percent. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 0.1 percent in New York yesterday. Mainland markets will be shut next week for the Lunar New Year holidays.
Trading volumes in the Shanghai Composite were 9.2 percent lower than the 30-day average today, according to Bloomberg data. The 100-day volatility was 17.8, compared with 17.5 over the past year.
“The current uptrend will likely take a breath before an anticipated resumption of the rally,” Tom DeMark, the creator of indicators to show turning points in securities, said in an e-mail yesterday. “It has been a rally of which many were initially skeptical and was characterized by much fear and trepidation at the low, and currently the sentiment has reversed and become positive.”
The Shanghai Composite will retreat about 8 percent before resuming gains as the surge in stocks has exhausted buyers, said DeMark, who correctly called the market’s bottom last year.
The Shanghai gauge is valued at 13.3 times reported profit, near the highest level since September 2011, data compiled by Bloomberg show. The 14-day relative strength measure, measuring how rapidly prices have advanced or dropped during a specified time period, was at 76 yesterday. Readings above 70 indicate a price may be poised to fall.
The statistics bureau is due to release January data on consumer prices and producer prices tomorrow. Consumer prices probably rose 2 percent from a year earlier, decelerating from a 2.5 percent gain a month earlier, according to the median estimate of 35 analysts in a Bloomberg survey. Export and import data are also scheduled tomorrow.
The People’s Bank of China signaled concern at inflation risks and said that monetary easing by nations, including the U.S. and Japan, may push up commodity prices and make global capital flows more volatile. China must be alert to changes in price-gain expectations and to imported inflation, the central bank said yesterday in a quarterly monetary policy report.
Vanke, the biggest listed property developer, lost 2.3 percent to 11.88 yuan. Poly Real Estate, the second largest, fell 0.9 percent to 13.02 yuan.
Some of China’s largest cities may slow sales approvals for housing projects in in the first half to tame price-gain “momentum,” the China Securities Journal reported today, without citing anyone. First-tier cities including Beijing will release new measures to curb demand because of overheating property markets, the Shanghai Securities News reported yesterday, citing an unidentified person close to the city’s housing commission.
The timing of government measures to curb gains in Chinese property prices may come earlier than expected because “upward pricing pressure is still robust,” Maybank Kim Eng Holdings Ltd. analyst Karen Kwan wrote in a report today. There has been a “sharp pick-up” in China’s property prices, she wrote.
Chinese banks have been loose in their lending to developers, which could change given concerns about rising real-estate prices, she wrote. New home prices rose 1 percent in January, the biggest gain in two years, SouFun Holdings Ltd. said Feb. 1.
A gauge of financial companies in the CSI 300 including banks tumbled 1.9 percent, the most among 10 industry groups. The measure is still up 42 percent since Dec. 3. Minsheng Banking slid 6 percent to 11 yuan. Its price-to-earnings ratio was the highest since December 2010 yesterday. Shanghai Pudong Development Bank Co. slumped 4.8 percent to 11.43 yuan. Huaxia Bank Co., partly owned by Deutsche Bank AG, retreated 4 percent to 11.71 yuan.
“While the fundamentals of Chinese banks are improving indeed, their recent rally was just too fast and too much,” said Tang Yayun, a Shanghai-based analyst at Northeast Securities Co. “That said, this is likely to be a short-term correction as their first-quarter results may surprise the market on the upside.”
A measure of consumer staples climbed 0.8 percent. The measure trades at 13 times estimated earnings, compared with the three-year average of 23.8. Tsingtao Brewery Co. advanced 1.3 percent to 34.02 yuan.
“We are quite confident on the long-term outlook” for consumer staples, Eddie Chow, who manages the Templeton China World Fund, said in a phone interview on Feb. 4. “Look at PE, brand value, they are still very attractive.”
There is “still upside” for A shares as valuations are “reasonable,” said Chow, whose fund has beaten 94 percent of peer funds over the past five years with a 4.7 percent gain according to data compiled by Bloomberg.