China Stocks Drop for Second Day as Curbs Hurt Property Shares

China Outlook: What's Ahead for the Markets?
  • Shanghai index hovers around 3,000 level before economic data
  • Manufacturing report may show pickup from previous month

China’s stocks fell for a second day, paring this month’s advance, as a gauge of small companies slumped and property developers extended losses amid concern new price-cooling measures will hit sales.

The Shanghai Composite Index slid 1.3 percent. Poly Real Estate Group. dropped to the lowest level in a month, dragging down a gauge of developers. The small-cap ChiNext index plunged the most in three weeks. The Hang Seng China Enterprises Index rose for the first time in four days as trading resumed in Hong Kong after a two-day holiday.

The nation’s biggest cities including Shanghai and Shenzhen rolled out measures late last week to tame soaring real-estate prices. The moves may hurt investor sentiment, according to Partners Capital International. Developers have led the Shanghai gauge’s 10 percent rebound from a January low.

“The regulation in the property market is likely to have a damaging impact on the stock market,” said Ronald Wan, chief executive at Partners Capital in Hong Kong. “With the Shanghai Composite hovering around the key 3,000 level, caution has set in to deter investors from snapping up stocks further.”

The Shanghai index closed below the key 3,000 level for a fourth straight day at 2,919.83, the lowest level in more than a week. Trading volumes were 17 percent below the 30-day average.

Even with this month’s rebound, the Shanghai measure has fallen 18 percent this year, the worst performance among major global benchmark indexes tracked by Bloomberg, amid concern the economic slowdown will curb earnings growth and a weaker yuan will fuel capital outflows.

Economic Data

Official manufacturing data for March is scheduled to be released on Friday and will give further clues on whether the economy is stabilizing. A report on Sunday showed industrial profits broke a seven-month losing run to climb 4.8 percent in the January-February period. The purchasing managers index probably rose to 49.3 from the previous month’s level of 49, according to the median estimate of economists surveyed by Bloomberg. A figure below 50 signals contraction.

The CSI 300 dropped 1.1 percent. The Hang Seng China index erased earlier losses to close up 0.3 percent, while the Hang Seng Index added 0.1 percent. The ChiNext slid 2.1 percent, paring a rally since last month’s low to 17 percent through Monday. The ChiNext trades at 60 times reported earnings, four times more expensive than the Shanghai index, according to data compiled by Bloomberg.

Technology Shares

A gauge of technology companies in the CSI 300 fell 1.6 percent, trimming this month’s rally to 11 percent, the best performance after consumer staples. Yonyou Network Technology Co. dropped 3.3 percent, paring the March gain to 23 percent. Airlines led declines for industrial companies after an Egypt Air flight from Alexandria to Cairo was hijacked. Air China Ltd. slumped 3.1 percent.

The Shanghai property index fell 1.6 percent, extending Monday’s 1.8 percent drop. Poly Real Estate slid 2.6 percent, while Gemdale Corp. declined 2.2 percent.

Shenzhen will increase down-payment requirements and limit local residents to purchases of two homes, while Shanghai will boost down-payment requirements, tighten approval criteria for non-resident homebuyers and ban unregulated lending.

The People’s Bank of China’s Nanjing branch said Monday that banks shouldn’t give housing loans to home buyers if downpayment funds come from real estate agencies, online lenders or small-loan companies. Home sales in Shanghai are likely to slow in the short term because prospective buyers will wait to see the effects of the new curbs, Albert Lau, chief executive officer of Savills Plc’s China unit, said in Shanghai.

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