China’s Stocks Fall on Property Concerns as Yuan Weakens
China’s stocks dropped, sending the benchmark index to its biggest retreat in five months, amid speculation a weaker property market and falling currency will curb corporate earnings. The yuan sank the most since 2010.
The Shanghai Composite Index (SHCOMP) declined 2 percent to 2,034.22, extending its four-day retreat to 5.1 percent. China Vanke Co.’s B shares tumbled 8 percent, leading declines among developers. Qingdao Haier Co. (600690), the nation’s biggest refrigerator maker, lost 3.9 percent. The yuan depreciated 0.46 percent, the steepest drop since Nov. 1, 2010, to close at 6.1266 per dollar.
China’s Industrial Bank Co. (601166) said yesterday it will delay loans for property projects until the end of March, fueling speculation that a weaker housing market will erode demand for everything from electric appliances to cars. The yuan’s decline, spurred by signs the world’s second-largest economy is losing momentum, threatens to raise costs for importers and companies with foreign-currency debt.
“Some investors may link the weakening of the yuan to a less optimistic outlook,” said Zeng Xianzhao, an analyst at Everbright Securities Co. in Chongqing. “Property financing curbs will probably be prolonged and other banks will follow suit. The slowdown in the property sector will spill over to other industries.”
The CSI 300 Index (SHSZ300) declined 2.6 percent to the lowest level since December 2012, following a 2.2 percent retreat yesterday. The Hang Seng China Enterprises Index (HSCEI) lost 0.7 percent, after earlier climbing as much as 1 percent.
“Despite Monday’s plunge, market sentiment had not reached catharsis,” Hao Hong, the chief China strategist at Bocom International Holdings Co., said in a note. A weak yuan is a “significant market risk” that may signal slower economic growth and hurt developers that borrowed in dollars, he said.
The Chinext index for smaller companies slumped 4.4 percent to 1,472.69, paring its gain during the past year to 72 percent. The China Securities Regulatory Commission may resume approvals of initial public offerings after a meeting of the National People’s Congress in March, 21st Century Business Herald reported yesterday, citing unidentified people from securities companies.
“Investors are showing weariness toward small-cap stocks after they had gained so much,” Zeng said.
A gauge of property companies in the Shanghai index slid 2.1 percent to the lowest level since June 26. Poly Real Estate Group Co. declined 1.5 percent, deepening yesterday’s 8.5 percent tumble.
Industrial Bank requested all branches to take stock of existing assets and market conditions after the Lunar New Year, according to the statement to the Shanghai Stock Exchange yesterday. It also suspended granting new credit to some developers and halted mezzanine financing.
The central bank singled out developers this month as one of three types of borrowers most at risk as authorities seek to tame debt that the Chinese Academy of Social Sciences estimates at 215 percent of gross domestic product.
Data yesterday showed new home price growth in China’s first-tier cities slowed in January after local governments implemented property measures to rein in escalating values and banks tightened lending.
“There are several concerns in the market -- the economy may slow more if property financing is curbed and the yuan is depreciating,” said Tang Yonggang, an analyst at Hongyuan Securities Co. in Beijing. “To local investors, this will affect traditional sectors such as properties and automobiles the most.”
China Vanke’s A shares lost 1.8 percent to 6.57 yuan after sliding 8.6 percent in the previous three days. Its B shares, denominated in Hong Kong dollars, dropped to the lowest level since November 2012.
Chinese lawmakers will start annual meetings next week to decide on major economic policies and growth targets. The official Purchasing Managers’ Index will probably come in at 50 for February, the dividing line between expansion and contraction in manufacturing, according to the median estimate in a Bloomberg survey before data due March 1. That would be the lowest reading since September 2012.
The yuan is also weakening amid speculation the central bank wants an end to the currency’s steady appreciation to ward off speculators before a possible widening of the trading band. Two-way capital flows will become the “new norm” for China and the exchange rate is likely to be more volatile as U.S. monetary stimulus is reined in, the State Administration of Foreign Exchange said today in a report.
“The PBOC is engineering the yuan declines, which might mean the central bank wishes to change the perception of the one-way bet on yuan gains,” said Kenix Lai, a Hong Kong-based currency analyst at Bank of East Asia Ltd. “It also looks like the PBOC is introducing two-way volatility as it prepares the renminbi for a wider trading band.”