European debt woes push China stocks to three-week low

SHANGHAI - Mainland stocks fell, sending the benchmark index to a three-week low, on concern Europe's debt crisis and Chinese property curbs will hurt earnings growth.

China Vanke Co paced losses by developers after the National Development and Reform Commission (NDRC) said home transactions in some cities began decreasing in mid-April. Industrial Bank Co slid 3 percent after saying it plans a rights offer this month.

"The macro risks are obvious - a slowdown in the West and policy-induced hard landing in China," said Jeff Coggshall, a London-based hedge fund manager at Tiburon Partners LLP who's betting on declines in some stocks tied to Chinese consumer demand. "I'm looking for a buy point but we're not there yet."

The Shanghai Composite Index declined 31.87, or 1.2 percent, to 2555.94 at the close, the lowest since April 30. The measure has lost 22 percent in 2010, after surging 80 percent last year. The CSI 300 Index dropped 1.3 percent to 2726.02.

Vanke declined 2.2 percent to 7.10 yuan. Poly Real Estate Group Co slid 1.7 percent to 10.53 yuan. Jiangxi Zhongjiang Real Estate Co dropped 8.5 percent to 7.87 yuan.

Prices have reached a plateau in some cities and speculators are exiting the property market, the NDRC said on its website after the market closed on Wednesday. Shenzhen plans to forbid the building of villas, Nanfang Daily reported, citing a local government report.

The government raised mortgage rates and down payments in April to curb real-estate price gains, while the central bank this month ordered banks to set aside more deposits as reserves for a third time in 2010.

Options traders are placing a record number of bearish bets against Chinese stocks as concern deepens that government measures to contain home prices and European debt problems will curb earnings.

The open interest, or number of existing contracts, for so-called put options on the iShares FTSE/Xinhua China 25 Index Fund surged 24 percent in the past month to 2.15 million as of Wednesday, data compiled by Bloomberg show. A gauge of demand for options that bet on a decline in the exchange traded fund and those profiting from a gain widened.

Industrial Bank declined 3 percent to 27.01 yuan. The bank will price its rights shares at 18 yuan each, according to an exchange filing. The bank plans to raise as much as 18 billion yuan ($2.64 billion) in the rights offer, which will begin on May 24.

Hang Seng falls

Hong Kong's benchmark Hang Seng Index fell 0.2 percent to 19545.83, its lowest close in more than eight months.

China Merchants Holdings (International) Co, the investor in ports moving about a third of the country's containers, lost 3.5 percent. Aluminum Corp of China Ltd, the country's largest aluminum producer, declined 2.9 percent after metal prices dropped.

The Hang Seng China Enterprises Index retreated 0.7 percent to 11048.38.

Bloomberg News

(China Daily 05/21/2010 page17)