View Full Version : China’s Stocks Drop Most in Five Weeks as Rate Cut Disappoints

12-23-2008, 07:28 AM
By Zhang Shidong and Fabio Alves

Dec. 23 (Bloomberg) -- China’s stocks slid by the most in five weeks, led by developers and energy companies on concern the latest interest-rate cut wasn’t deep enough to keep the world’s fourth-largest economy from weakening.

China Vanke Co., the nation’s biggest publicly traded property developer, lost 4.9 percent and Poly Real Estate Group Co., the second largest, retreated 6.4 percent. China Petroleum & Chemical Corp., the country’s second-biggest oil company, dropped 4.3 percent and China Shenhua Energy Co., the nation’s largest coal producer, fell 4.7 percent on concern a deepening recession will reduce the demand for energy.

The CSI 300 Index, the benchmark gauge of companies traded in Shanghai and Shenzhen, sank 98.59, or 4.9 percent, to 1,918.95 at the close, the biggest drop since Nov. 18. Only 5 stocks rose on the 300-member measure.

“If the economy was in a good shape, there wouldn’t be so many rate cuts, the effect of which is subsiding now,” said Yi Yangfang, a fund manager at Guangzhou-based GF Fund Management Co., which oversees the equivalent of $12 billion. “The market is worried that first-quarter earnings could still be ugly.”

China lowered borrowing costs for the fifth time in three months yesterday after trade growth collapsed because of recessions in the U.S., Europe and Japan. The one-year lending rate will drop by 0.27 of a percentage point to 5.31 percent and the deposit rate by the same amount to 2.25 percent, the People’s Bank of China said yesterday after the market closed.

Slowing Economic Activity

The benchmark stock index has rebounded 18 percent from a two-year low on Nov. 4 as the government last month unveiled a 4 trillion yuan ($583.8 billion) infrastructure spending plan to stimulate growth. Still, the measure is Asia’s second-worst performer in 2008, as the slowing economy drove the benchmark index down 64 percent this year.

“This rate cut is an indication that economic activity in China is slowing much faster than anticipated,” said Roberto Lampl, who manages $4 billion in emerging-market stocks, including Chinese shares, at ING Investment Management in The Hague. “Chinese authorities are using monetary policy to reignite demand because of this weaker-than-expected economic environment.”

Vanke fell 4.9 percent to 6.98 yuan. Poly Real Estate slid 6.4 percent to 16.03 yuan. Gemdale Corp., a Chinese developer that partnered with ING Groep NV, lost 8.6 percent to 7.19 yuan.

Citic, Ping An

Citic Securities Co., the brokerage unit of China’s biggest investment company, declined 7.4 percent to 19.46 yuan. Hong Yuan Securities Co., China’s first publicly traded brokerage, slumped by the 10 percent daily limit to 13.47 yuan. Ping An Insurance (Group) Co., the nation’s second-biggest insurer, lost 6 percent to 27.01 yuan.

The Bank of New York Mellon China ADR index, which tracks the country’s American depositary receipts, sank 4.2 percent to 278.93 in New York trading, its steepest loss since Dec. 1.

China’s economic growth may slow to 5 percent next year, less than half the 11.9 percent expansion in 2007, according to Royal Bank of Scotland Plc. The World Bank forecasts the economy will grow 7.5 percent in 2009. The government is targeting an 8 percent expansion.

China cut interest rates by 1.08 percentage points last month, the biggest reduction in 11 years. Citigroup Inc. and HSBC Holdings Plc had anticipated at least a 54-basis-point reduction yesterday.

“The surprise is how small the move is,” said Mark Williams, an economist with Capital Economics in London. “There’s been a sudden, very rapid deterioration in all China’s economic data over the last 8 to 12 weeks.”

‘Need Surprises’

Exports fell 2.2 percent last month after growing 19.2 percent in October. Imports plunged 17.9 percent.

China Petroleum, also known as Sinopec, slid 4.3 percent to 7.35 yuan. Shenhua fell 4.7 percent to 18.73 yuan. PetroChina Co., the nation’s biggest oil company, declined 4.3 percent to 10.45 yuan. Datong Coal Industry Co., China’s second-largest coal company by capacity, retreated 8.1 percent to 12.36 yuan.

Crude oil for February delivery fell as much as 61 cents, or 1.5 percent, to $39.30 a barrel in after-hours trading in New York. Prices have dropped 73 percent from a record $147.27 on July 11. January futures, which expired last week, plunged 6.5 percent to $33.87 a barrel on Dec. 19, the lowest settlement for a contract closest to expiration since Feb. 10, 2004.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, declined 4.6 percent to 1,897.23. The Shenzhen Composite Index dropped 5.6 percent to 587.21.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

China Life Insurance Co. (601628 CH), the nation’s biggest insurer, dropped 0.97 yuan, or 4.8 percent, to 19.35. American International Group Inc. may list its American International Assurance unit in Hong Kong after selling a minority stake to strategic investors, Ming Pao Daily News reported, citing an unidentified person. China Life is keen to buy shares in AIA to expand its earnings base outside its home nation to more than half of Asia, it said.

Sinotrans Air Transportation Development Co. (600270 CH), a unit of China’s largest air shipper, surged 0.64 yuan, or the 10 percent daily cap, to 7.07. CSC Nanjing Tanker Corp. (600087 CH), which provides water transport services, advanced 0.44 yuan, or 9.5 percent, to 5.06. China’s regulator of the state-owned assets has approved the merger of parents of the two companies, said CSC Nanjing Tanker in a statement today.

Shenzhen Zhongjin Lingnan Nonfemet Co. (000060 CH), China’s fourth-largest zinc producer, slid 0.70 yuan, or 7.4 percent, to 8.80. The fees it charges mining companies to process their raw material into finished metal may drop by a third as metal prices plunge, Han Minzhi, general manager of sourcing, marketing and sales said in a phone interview.

To contact the reporter on this story: Zhang Shidong in Shanghai at [email protected]; Fabio Alves in New York at [email protected]
Last Updated: December 23, 2008 03:13 EST