Money

Benchmark hits four-month low

By Darren Boey (China Daily)
Updated: 2011-06-03 11:06

FAW Car Co dropped 1 percent to 13.42 yuan ($2.07) on Thursday after the 21st Century Business Herald said China's passenger car sales decreased. [Photo / China Daily]

Concern that tightening policies will hurt earnings prompt retreat

SHANGHAI - Stocks on the Chinese mainland fell on Thursday, driving the benchmark index to the lowest level in more than four months. The retreat came on concern that slowing economic growth and government tightening policies will hurt corporate earnings.

China Vanke Co, the nation's largest developer, paced the decline for real estate companies after the Securities Times said government-imposed property curbs are long-term policies. FAW Car Co dropped among automakers after the 21st Century Business Herald said China's passenger car sales decreased. Jiangxi Copper Co sank 1.7 percent, leading losses for material producers, after metals and oil prices dropped.

The Shanghai Composite Index slid 38.4 to 2705.18 at the 3 pm local-time close, the lowest since Jan 25. The CSI 300 Index dropped 1.6 percent to 2955.71, as all industry groups declined.

"Inflationary pressure is forcing the government to compromise on economic growth, which is fueling investor pessimism," said Mei Luwu, a Shenzhen-based fund manager at Lion Fund Management Co, which oversees more than $7.8 billion.

The Shanghai Composite has plunged 12 percent from this year's high on April 18, more than the 10 percent drop that signals to some investors that the market has entered a correction, on concern growth in the world's second-largest economy is slowing after the central bank raised the reserve requirement ratio for banks 11 times and boosted interest rates four times since the start of 2010 to cool inflation. The stock gauge has dropped 3.7 percent this year.

The central bank may raise interest rates ahead of a public holiday on June 6 because consumer prices are expected to rise to a new high in May, the Shanghai Daily said on May 31, citing UBS AG. Inflation rose 5.3 percent last month, exceeding the government's full-year target of 4 percent.

Related readings:  Chinese shares fall following Wall Street plunge  Inflation may peak in June  Investor protection vital for market to move forward  Pressure taking its toll on investors' health

In New York, the Standard & Poor's 500 Index retreated 2.3 percent on Wednesday, its biggest decline since August, after the Institute for Supply Management's US factory index fell to its lowest level since September 2009 and a private report on Wednesday showed the US employers added 38,000 jobs, less than one-quarter of the median growth forecast by economists.

Jiangxi Copper lost 1.7 percent to 32.44 yuan ($5.01), the most since May 23. Yunnan Copper Industry Co slid 2.2 percent to 20.70 yuan. PetroChina Co retreated 1.5 percent to 10.70 yuan.

A manufacturing index in China showed the slowest pace of expansion in nine months, official data showed on Wednesday, while the equivalent measure for the eurozone fell to a seven-month low. The US gauge of factory growth was at its weakest in a year, Russia's index signaled "near stagnation", and reports from Poland to Hungary also showed a loss of manufacturing momentum.

The synchronized drop in global factory indicators is adding to evidence that the world's economy is struggling to withstand the combination of rising oil prices, the aftermath of Japan's earthquake and Europe's sovereign-debt crisis.

China's economic growth may slow to about 9 percent this year from 10.3 percent in 2010, China Securities Journal wrote in an editorial on Thursday.

FAW Car dropped 1 percent to 13.42 yuan. Chongqing Changan Automobile Co retreated 2.8 percent to 8.79 yuan. China's passenger car sales, excluding minivans, dropped 1 percent in May from a year earlier to 850,000 units, the 21st Century Business Herald reported on Thursday, citing the country's Passenger Car Association. Sales fell 11 percent last month from April, the newspaper cited the association as saying.

A gauge tracking property stocks on the Shanghai Composite sank 1.9 percent, the lowest close since Sept 29. China Vanke slipped 1.3 percent to 7.72 yuan. Poly Real Estate Group Co plunged 2.9 percent to 9.05 yuan.

Property market curbs, including home purchase limits and property tax trials, are long-term policies, the Securities Times reported on Thursday, citing Qin Hong, deputy director of the Ministry of Housing and Urban-Rural Development's policy research center.

Chinese regulators have suspended property businesses at 10 domestic trust companies, the Shanghai Securities News reported on Thursday, citing an unidentified person familiar with the situation. Property companies have been borrowing funds from trust companies as banks tighten lending, the report said.

The average price of new homes in Shanghai fell 0.64 percent in May from the previous month, according to the property consultant Shanghai UWin Real Estate Information Services Co.

Industrial and Commercial Bank of China Ltd slipped 0.9 percent to 4.44 yuan. China Construction Bank Corp lost 3.4 percent to 4.88 yuan, the biggest drop since Jan 17.

China's State-run investment firm, Central Huijin Investment Co, has no plan to raise its stakes in the country's four biggest commercial banks by purchasing shares in the market, Caixin Online reported on Wednesday, citing an unidentified person.

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