China Stocks Drop First Time in Three Days as Banks Fall
China’s stocks fell for the first time in three days as banks and property developers slumped, overshadowing government measures to support economic growth.
Poly Real Estate Group Co. (600048) slid 1.6 percent, while China Vanke Co. declined 2.3 percent after the China Securities Journal called for maintaining restrictions on home purchases. Agricultural Bank of China Ltd. and China Citic Bank Corp. fell more than 2 percent. China Railway Construction Corp. advanced after the government said it will sell bonds and set up funds to build railways mainly in less-developed regions.
The Shanghai Composite Index (SHCOMP) dropped 0.7 percent to 2,043.70 at the close. The State Council also said yesterday the nation will extend a preferential tax policy to more small companies and increase financing to build low-income housing. China’s leaders may be reluctant to duplicate large-scale stimulus after a 4 trillion yuan ($645 billion) package during the global financial crisis led to inflation, a housing bubble and industrial overcapacity.
“The magnitude of the stimulus measures from the government isn’t that big enough to withstand a slowdown in economic growth as the total amount is pretty small relatively to GDP,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The market is worried first-quarter growth may be less than 7 percent.”
The Shanghai Composite has fallen 3.4 percent this year on concern the government will miss its annual growth target of 7.5 percent this year. Two Chinese manufacturing gauges released on April 1 pointed to weakness in the economy last month, with a Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics falling to the lowest level since July. A service industries index from the government declined in March, indicating a slower pace of expansion, a report showed today.
The Shanghai property index slid 1.9 percent today, the most among the five industry groups. Vanke, the nation’s biggest listed property developer, lost 2.3 percent to 8.10 yuan. Poly Real Estate, the second biggest, slid 1.6 percent to 8.11 yuan. China Merchants Property Development Co. (000024) dropped 2.7 percent to 19.40 yuan.
The government shouldn’t remove home purchase curbs nationwide as supply still can’t meet demand in first- and second-tier cities, according to a front-page commentary in the China Securities Journal.
Agricultural Bank of China, the nation’s third-biggest lender by market value, dropped 2.1 percent to 2.39 yuan. Citic Bank retreated 2.6 percent to 4.57 yuan.
China’s debt is poised to keep expanding faster than the economy through at least 2016, testing the limits of a credit-driven growth model that’s already exceeded the imbalances in Japan before its lost decade.
The combined ratio of government, corporate and household debt to gross domestic product is set to climb to 236.5 percent in 2016 from 225 percent last year, based on median estimates in a Bloomberg News survey of economists and analysts. The responses reflect skepticism that the Communist Party is prepared to allow the long-term deleveraging flagged by the central bank.
China Railway Construction, builder of more than half the nation’s rail links since 1949, added 0.7 percent to 4.37 yuan. China Railway Group Ltd. (390), the country’s biggest construction company by total assets, rose 0.4 percent to 2.56 yuan.
The government will sell 150 billion yuan ($24 billion) of bonds this year to help build railways mainly in the central and western regions, the State Council said in a statement after a meeting led by Premier Li Keqiang. Authorities will also create a development fund of 200 billion yuan to 300 billion yuan a year to increase sources of rail financing.
The Shanghai index is valued at 7.5 times 12-month projected earnings, compared with the five-year average multiple of 12.1, according to data compiled by Bloomberg. Trading volumes were 3.9 percent above the 30-day average today.
MSCI Inc.’s plan to add China’s domestic shares to its global indexes is drawing opposition from Templeton Emerging Markets Group and Coutts & Co.
The proposal is a “very bad idea and will make the indices increasingly irrelevant,” Mark Mobius, who oversees about $50 billion as executive chairman of Templeton Emerging Markets, said in an e-mail. The shares shouldn’t be included because of limited quotas for overseas investors and an uncertain tax regime, said Kenneth Sue, head of products & services for Asia at Coutts, which counts Queen Elizabeth II among its clients.
MSCI, whose indexes are used to measure performance by money managers with an estimated $8 trillion of assets, is consulting with investors on its China plan as the world’s second-largest economy takes steps to open up its $3.3 trillion stock market to foreigners.
To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at email@example.com