China’s Stocks Decline From Two-Month High as PBOC Drains Funds

China’s stocks fell, with the benchmark index declining from a two-month high, after the central bank drained funds from the banking system.

China Citic Bank Corp. slid the most in two weeks and Changjiang Securities Co. dropped 4.2 percent as a gauge of financial shares slumped 2.1 percent. Shanghai Fosun Pharmaceutical (Group) Co. jumped 8.7 percent after saying it will buy a stake in a hospital operator.

The Shanghai Composite Index retreated 0.8 percent to 2,119.07 at the close, dropping from its highest level since Dec. 18. The People’s Bank of China sold repurchase contracts for the first time since June today after data showed record new credit was extended last month. The Hang Seng China Enterprises Index lost 0.8 percent.

“The central bank has realized there’s a need to soak up some liquidity,” said Wang Weijun, a Shanghai-based strategist at Zheshang Securities Co. “The process will pressure stocks.”

The CSI 300 Index slid 1.3 percent to 2,282.44, as a gauge of financial shares fell the most among 10 industry groups.

Citic Bank retreated 2.5 percent to 4.69 yuan. China Minsheng Banking Corp., the nation’s first privately owned bank, lost 1.4 percent to 7.74 yuan. Changjiang Securities declined 4.2 percent to 9.39 yuan. Citic Securities Co., China’s biggest listed brokerage, dropped 3.4 percent to 11.50 yuan, the largest decline since Nov. 13.

The PBOC conducted 48 billion yuan ($7.9 billion) of 14-day repurchase contracts today, according to two traders at primary dealers required to bid at the auction. The monetary authority last issued such contracts on June 6, when it sold 10 billion yuan of 28-day repos.

‘Hawkish Move’

Conducting repos is “a hawkish move highlighting the central bank’s determination to tighten monetary policy via liquidity tools,” said Dariusz Kowalczyk, a Hong Kong-based strategist at Credit Agricole CIB.

Aggregate financing, the broadest measure of credit, was 2.58 trillion yuan, the PBOC said Feb. 15. New local-currency lending was 1.32 trillion yuan, the highest level since 2010.

The jump in loans contrasts with the central bank’s January warning that bank credit was increasing rapidly and also its statement in November that the economy may face long-term deleveraging. Each $1 of credit added the equivalent of 17 cents in GDP in the first quarter of 2013, down from 29 cents the previous year and 83 cents in 2007, according to data compiled by Bloomberg.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repurchase rate, was little changed at 4.84 percent, according to data compiled by Bloomberg. It climbed eight basis points yesterday.

Stock Valuations

Volumes on the Shanghai Composite were 65 percent higher than the 30-day average today. The gauge is valued at 10.7 times reported earnings after reaching a record low of 10 last month, according to data compiled by Bloomberg.

Shanghai Fosun Pharmaceutical jumped 8.7 percent to a record 21.82 yuan. The maker of drugs and traditional Chinese medicine teamed up with private-equity firm TPG Capital to acquire Chindex International Inc., in a deal valuing the New York-listed operator of hospitals in China at $369 million.

China’s foreign direct investment increased 16 percent from a year earlier in January, accelerating from a 3.3 percent growth a month earlier, the Ministry of Commerce said today on its website. That exceeded the median estimate of a 2.5 percent increase in a Bloomberg survey.

Separately, the gap in reported economic output between China’s provinces and national statistics narrowed for the first time in six years as Communist Party leaders vowed to reduce the focus on growth in evaluating local officials.

The combined nominal economic output of the 31 provinces expanded about 9.2 percent in 2013 to 62.9 trillion yuan, according to data reported by local governments since December and compiled by Bloomberg News. That exceeded the national figure by 6.06 trillion yuan, or 10.7 percent, after an 11 percent margin in 2012.

— With assistance by Shidong Zhang

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