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Equities decline most in five weeks

(China Daily/Agencies)
Updated: 2009-10-28 08:07

China's stocks fell the most in five weeks, dragging the benchmark index from a 10-week high, as lower commodity prices spurred losses among materials producers and concern grew that the government will curb stimulus measures.

The Shanghai Composite Index slid 88.11, or 2.83 percent, to 3,021.46 at close, the most since Sept 18. The index has rallied 66 percent this year as stimulus spending and record loans helped the nation's economy rebound from the deepest slump in almost a decade. The CSI 300 Index, tracking equities on Shanghai and Shenzhen exchanges, lost 2.91 percent to 3,314.72.

"We're cautious on the market as valuations are quite high," said Wang Weijun, Shanghai-based strategist at Zheshang Securities Co. "The government will likely rein in stimulus and reserve some ammunition once it sees the economy is back on track."

Stocks on the Shanghai Composite trade at 33.31 times earnings, compared with last year's November low of 12.86 times. The country's recovery has been driven by 4 trillion yuan ($586 billion) of spending on railways, roads, power plants and public housing. The program ends next year.

PetroChina, the nation's largest oil producer, dropped 2.6 percent to 13.37 yuan, the most since Aug 31. China Shenhua Energy Co, the biggest coal producer, slumped 4.6 percent to 34.79 yuan. Jiangxi Copper, the country's largest producer of the metal, slipped 5.7 percent to 39.43 yuan after more than quadrupling this year.

Stephen Roach, chairman of Morgan Stanley Asia, said yesterday investors are wrong to bet that China will restrain its unprecedented stimulus after the economy accelerated in the third quarter.

Roach's view contradicts that of analysts at Credit Suisse Group AG and UBS AG, who are among those predicting that the Chinese authorities will raise banks' cash reserve requirements as soon as by the end of December.

Hang Seng plunges

Related readings:  China locked into financial policy  Chinese shares close down 2.83% Tuesday  China's banking regualtor urges reasonable pace of lending  Hong Kong stocks close 1.86% lower

Hong Kong's benchmark stock index fell the most in three weeks, led by developers on concern the city's tightening of down-payment requirements for luxury homes will damp demand.

Sino Land Co plunged 5.4 percent and Henderson Land Development Co dipped 4.3 percent, leading declines among property stocks.

"We're a bit cautious because there are uncertainties as to what the government is going to do next, whether they will increase land supply or not to ensure appropriate adjustments in property prices," said John Koh, regional investment director at MEAG Hong Kong Ltd. "A correction is inevitable in both property prices and developers' share prices."

The Hang Seng Index slid 1.86 percent to close at 22,169.59, its biggest drop since Oct 2. The Hang Seng China Enterprises Index, which tracks H shares of mainland companies, slipped 1.3 percent to 13,145.59.