Bloomberg - China’s stocks fell for a fourth day on concern government measures to cool inflation are slowing the world’s second-biggest economy.
PetroChina Co., the nation’s biggest oil company, lost 1.9 percent after Goldman Sachs Group Inc. cut China’s economic growth estimates. Industrial and Commercial Bank of China Ltd. led declines for lenders after the Securities Times cited investors as saying the central bank may further boost banks’ reserve requirement ratios. China Gezhouba Group Co., which has hydroelectric power projects, rose 2.4 percent as Xinhua News Agency reported China will boost water conservation efforts.
“Investors are concerned about the pace of economic growth after so many measures to cool the economy and the debt crisis in Europe,” said Sun Chao, an analyst at Citic Securities Co., China’s biggest-listed brokerage, in Shanghai. “They are simply selling as they are unwilling to take more risks for now.”
The Shanghai Composite Index dropped 7.5 points, or 0.3 percent, to 2,767.06 as of the 3 p.m. close. The measure has lost 9.5 percent from the close of 3,057.33 on April 18, after earlier sliding as much as 10 percent, a sign analysts say that the market has entered a correction.
The measure plunged 2.9 percent yesterday, erasing this year’s advance of as much as 8.9 percent, after a manufacturing gauge fell to its lowest level in 10 months. China’s preliminary manufacturing index, known as the Flash PMI, was at 51.1 in May, compared with the final reading of 51.8 in April, HSBC Holdings Plc and Markit Economics said yesterday. A number above 50 indicates expansion.
ICBC, the nation’s biggest lender, dropped 0.5 percent to 4.44 yuan today. Agricultural Bank of China Ltd. slid 0.7 percent to 2.85 yuan.
Bank Ratios
The central bank may suspend a sale of three-year notes this week and increase banks’ reserve requirement ratios, the Securities Times reported, citing one market opinion. A suspension may also indicate the central bank is expecting a slowdown in growth, it said, citing another market opinion.
China may continue to raise interest rates, Joseph Yam, the former head of the Hong Kong Monetary Authority, said today. The People’s Bank of China aims to make the one-year deposit rate higher than the rate of inflation, Yam told reporters.
The central bank has increased reserve requirements for banks 11 times and boosted interest rates four times since the start of 2010 to cool consumer prices, which exceeded economists’ estimates in April with a 5.3 percent increase.
Recent rises in pork prices will likely push up China’s inflation in May, according to the Financial News, a People’s Bank of China publication. Each 20 percent increase in the price of pork will likely contribute 0.6 percentage points to the consumer price index, the newspaper said, citing Li Mingliang, an analyst with Haitong Securities Co.
Further Drop
Goldman Sachs said it wouldn’t “rule out” a further decline of up to 10 percent for Chinese stocks as growth in the world’s second-biggest economy slows and inflation accelerates.
“We would not rule out a correction of up to 5 percent to 10 percent near term, triggered by earnings per-share cuts, but would buy on such dips given low earnings risks, valuation, likely policy inflection,” Goldman Sachs analysts led by Helen Zhu and Timothy Moe said in a report today. It expects inflation to peak in June and forecasts “normalization of policy sometime in the third quarter in 2011,” according to the report.
China’s gross domestic product will gain 9.4 percent in 2011, less than a previous call of 10 percent, Goldman Sachs said. The U.S. bankdowngraded Chinese steel, aluminum and industrial stocks to “underweight” from “neutral,” while keeping property and bank shares as top picks.
Commodity Stocks
PetroChina lost 1.9 percent to 10.66 yuan. China Petroleum & Chemical Corp. (600028), Asia’s largest oil refiner, also known as Sinopec, fell 0.3 percent to 8.09 yuan. Tongling Nonferrous Metals Group Co., the second-largest copper producer, declined 3.7 percent to 23.35 yuan.
The Standard & Poor’s 500 Index posted its biggest drop in two months as commodities slumped amid concern that Europe’s debt crisis is worsening and the global economic recovery is losing momentum.
The Federal Reserve Bank of Chicago’s gauge of economic activity unexpectedly dropped below zero in April. In Europe, services and manufacturing growth slowed more than economists forecast in May. Belgium had the outlook on its AA+ credit rating lowered to negative from stable at Fitch Ratings, which cited concern over the pace of structural reform.
Crude oil for July delivery tumbled 2.4 percent to settle at $97.70 a barrel in New York yesterday, the biggest one-day drop since May 11. The London Metal Exchange Index of prices for six industrial metals including copper and aluminum lost 2.7 percent yesterday, the most since May 5.
Water Stocks
Chongqing Three Gorges Water Conservancy and Electric Power Co. surged 10 percent to 19.70 yuan. China Gezhouba added 2.4 percent to 11.46 yuan, the highest close since May 10.
China will increase investment in water conservation projects this decade to 4 trillion yuan, up from 1.06 trillion yuan in the previous 10 years, Xinhua reported, citing Minister of Water Resources Chen Lei. The plan will allow the nation to fight droughts and floods, which have increasingly affected many regions across the nation, Xinhua said, citing Chen.
To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net
