China’s Stocks Fall, Dragging CSI 300 to 2009 Low; Sinopec Drops
China’s stocks fell, dragging the CSI 300 (SHSZ300) Index to the lowest level since 2009, on concern the nation’s new leadership won’t accelerate economic reforms including reducing the dominance of state-owned enterprises.
China Petroleum & Chemical Corp. (600028), an oil refiner known as Sinopec, retreated 2 percent after the government lowered fuel prices for the first time since July. Qingdao Haier Co., the biggest refrigerator maker, dropped to a two-week low after China said it will end subsidies of rural home-appliance sales. China Shenhua Energy Co. led a gauge of energy producers to the third-steepest drop among industry groups.
“The composition of top leaders may indicate that the much-needed reforms such as the break-up of the monopoly of state-owned enterprises will be done in a slow and gradual way,” said Li Jun, a strategist at Central China Securities Co. “The magnitude of the reforms may be weaker than expected.”
The CSI 300, representing the biggest companies in the Shanghai and Shenzhen exchanges, declined 0.8 percent to 2,177.24, the lowest level since March 2009. The Shanghai Composite Index (SHCOMP) slid 0.8 percent to 2,014.73, the lowest close since Sept. 26. The measure last closed below 2,000 in 2009. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong added 0.2 percent. The Bloomberg China-US 55 Index (CH55BN) fell 0.5 percent in New York yesterday.
The Shanghai Composite slid 2.6 percent this week, the biggest decline among Asia’s major markets according to data compiled by Bloomberg, as the Communist Party held a meeting to appoint new leaders. Xi Jinping was named general secretary yesterday, putting him in line to become president, while Vice Premier Li Keqiang is forecast to replace Premier Wen Jiabao.
Wang Qishan, vice premier overseeing the financial sector, was named head of the party’s discipline body, indicating he won’t have a post directly overseeing an economy that is forecast to grow this year at the slowest pace in more than a decade. Under his watch, China in June 2010 moved to widen the yuan trading band and remove its peg to the dollar.
“Hopes for economic reform took a big hit,” Adam Wolfe, a senior economist for Asia at Roubini Global Economics, wrote in an e-mail yesterday. “Wang has a track record of implementing market-oriented reforms in the past. He would have been expected to take on the state-owned enterprises’ monopolies and ease financial repression in the banking sector.”
Wang, Xi, Li, Zhang Dejiang, Shanghai party boss Yu Zhengsheng, Liu Yunshan and Zhang Gaoli were also elected to the Politburo’s Standing Committee, the highest decision-making body, which was cut to seven members from nine.
The Standing Committee has a “sizable presence of cautious and conservative leaders, such as Zhang Dejiang, Liu Yunshan and Zhang Gaoli,” said Tai Ming Cheung, an associate professor specializing in Asian security at the University of California, San Diego.
New leaders face the challenge of reining in the dominance of state-owned enterprises that has helped drag stock valuations down the most among the so-called BRIC nations in the past decade. The Shanghai index trades at 9.6 times estimated profit for 2012, compared with the 17.8 average multiple since Bloomberg began compiling the weekly data in 2006. It has fallen 8.4 percent this year.
The profit slump at state-owned enterprises and speculation initial public offerings will resume after the end of the party congress is also dragging on markets, said Mao Sheng, an analyst for Huaxi Securities Co. in Chengdu.
State-owned companies’ combined profit for the first ten months of this year dropped 8.3 percent from a year earlier, the finance ministry said yesterday. More than 25 percent of China’s state enterprises are unprofitable and their productivity growth has trailed that of private firms the past three decades, the World Bank said in February.
Sinopec slid 2 percent to 6.04 yuan. The maximum at which gasoline can be sold to motorists will fall by 310 yuan ($50) a metric ton and diesel by 300 yuan starting today, the National Development and Reform Commission said yesterday.
China Shenhua, the nation’s largest coal producer, fell 1.8 percent to 21.72 yuan. Datong Coal Industry Co., the third biggest, sank 2.2 percent to 8.65 yuan. A gauge of energy producers fell 1.5 percent today, adding to a five-day loss of 4.2 percent.
Haier slid 1.1 percent to 11.12 yuan, the lowest close since Oct. 29. Gree Electric Appliances Inc. declined 0.7 percent to 22.75 yuan. The government will end rural home appliance subsidies Jan. 31, according to a statement posted on the Ministry of Finance’s website.
Trading volumes in the Shanghai Composite were 26 percent lower than the 30-day average, according to data compiled by Bloomberg. Thirty-day volatility in the Shanghai Composite was at 14, compared with this year’s average of 17.1.
China will cut the stock dividend tax by half for individuals who hold shares for at least one year as part of efforts to encourage long-term investment and educe speculative trading.
The tax rate will be lowered to 5 percent effective Jan. 1, the Ministry of Finance said in a statement on its website today. The rate will be doubled to 20 percent for those who hold shares for one month or less and be kept unchanged at 10 percent for those who keep equities between one month to one year, according to the statement.
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