China’s Stocks Fall Most in Three Months on Wen’s Speech

China’s stocks fell, dragging the benchmark index down the most in more than three months, after Premier Wen Jiabao said home prices are still far from reasonable levels.

The Shanghai Composite Index slumped 2.6 percent at the close, reversing an earlier 0.8 percent gain. A relaxation of curbs on the property market would lead to “chaos,” Wen said at a press conference in Beijing today. A gauge tracking property stocks sank 3.7 percent, led by Poly Real Estate Group Co., while Anhui Conch Cement Co. paced losses by building-material companies.

“Wen’s speech has raised concern that property curbs may be kept in place for longer than previously expected,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “Property accounts for a significant part of the economy.”

The Shanghai Composite had rallied 12 percent in 2012 through yesterday following two years of losses on speculation the central bank would add to a Feb. 18 cut in lenders’ reserve requirements to bolster economic growth. The government’s two-year effort to control the property market helped spur a 26 percent drop in home sales in the first two months of the year.

The Shanghai stock gauge closed 64.57 points lower at 2,391.23, the biggest loss since Nov. 30. The CSI 300 Index retreated 2.8 percent to 2,605.11. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, added 2.1 percent in New York yesterday.

Equity Valuations

Stocks in the Shanghai index trade at 9.9 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed.

“We must not slacken our efforts in regulating the housing sector,” Wen said, according to an English translation. A bursting property bubble would hurt the entire economy, and the government wants “long-term steady and sound growth” in housing, he said.

The Shanghai Stock Exchange Property Index retreated the most since Sept. 22. Poly Real Estate, China’s second-largest developer by market value, dropped 3 percent to 11 yuan. China Vanke Co., the biggest, lost 2.7 percent to 8.20 yuan. Gemdale Corp., the fourth largest, slumped 5.9 percent to 5.88 yuan.

“As long as policies remain restrictive, it is difficult for property stocks to continue to perform well,” Timothy Moe, a Hong Kong-based strategist at Goldman Sachs Group Inc., said at a conference in Singapore today.

Building-material makers retreated as falling property sales may curb demand for cement. Anhui Conch, China’s biggest cement maker, slid 3.3 percent to 16.72 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., plunged 6.2 percent to 15.25 yuan.

Economic Slowdown

Wen’s comments came after data last week showed China’s factory output in the first two months rose the least since 2009, while retail sales increased less than economists predicted and inflation eased to the slowest pace in 20 months. The government also lowered its 2012 economic growth target to 7.5 percent on March 5 from 8 percent over the past seven years.

“Wen’s speech gave no indication of further stimulus or policy easing such as a cut in reserve ratios which disappointed investors,” River Fund’s Zhang said. “Investors are taking profit.”

A measure of consumer discretionary stocks in the CSI 300 slid 3.9 percent, paring its gain this year to 13 percent. Pang Da Automobile Trade Co., China’s biggest listed auto dealer, tumbled 9.6 percent to 9.28 yuan. SAIC Motor Corp., the nation’s largest carmaker, lost 3.8 percent to 15.22 yuan.

Bank Lending

In a sign that the government may be taking more steps to support growth, China is easing restrictions on lending capacity at three of the nation’s four biggest banks, officials at the lenders with knowledge of the matter said.

China’s economic stimulus since 2008 has failed to spur lasting gains in equity valuations even after gross domestic product rose more than 30 times faster than the world’s biggest economies.

The price-to-book ratio of the Hang Seng China Enterprises Index has declined 21 percent since the collapse of Lehman Brothers Holdings Inc. in September 2008, reversing an increase of as much as 26 percent in 2009. The drop in China is the biggest among equity indexes in the four largest economies, according to data compiled by Bloomberg.

Wen also said that the yuan may be near an equilibrium value and that policy makers will allow greater movement in the exchange rate. The currency is down 0.6 percent this year against the dollar after gaining 4.7 percent in 2011.