China’s Stocks Slump to Two-Month Low on Property Curbs Concern

By Bloomberg News

Chinese stocks fell, dragging the benchmark index to a two-month low, as construction and real estate companies tumbled on concern policy makers will step up property curbs.

Sina.com reported the southern city of Shenzhen banned developers from raising home prices, citing discussions with property companies. Sany Heavy Industry Co. (600031), China’s biggest maker of construction machinery, lost 2.4 percent. Poly Real Estate Group Co. and Gemdale Corp. declined more than 3 percent. “Property curbs and the central bank’s possible attitude towards tightening liquidity make investors nervous,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “There’s concern the economic recovery will falter.”

The Shanghai Composite Index (SHCOMP) dropped 1.3 percent to 2,256.59 as of 1:06 p.m. local time, extending a four-day, 2.6 percent slump and heading for its longest losing streak in four months. The gauge also erased its gain for the year. TheCSI 300 Index (SHSZ300) declined 1.5 percent to 2,518.06. TheHang Seng China Enterprises Index (HSCEI) retreated 1.5 percent in Hong Kong. The Bloomberg China-US 55 Index (CH55BN) fell 1.7 percent in New York yesterday.

The Shanghai Composite Index has lost 7.3 percent since this year’s high on Feb. 6 amid concern the government will tighten monetary policy at the same time as economic expansion slows. Data over the weekend showed inflation accelerated in February, while industrial output had the weakest start to a year since 2009 and lending and retail sales growth slowed.

Property Curbs

A measure tracking industrial companies slid 2.3 percent, the biggest decline among the 10 groups in the CSI 300. Sany Heavy lost 2.4 percent to 10.53 yuan. Zoomlion Heavy Industry Science and Technology Co., the second-biggest construction- machinery maker, declined 2 percent to 8.42 yuan, heading for a three-month low.

Shenzhen’s land authorities won’t approve the sale of property projects with higher prices, news portal Sina.com reported, citing unidentified officials with developers including Gemdale. Shenzhen adjoins Hong Kong.

The Shanghai Stock Exchange Property Index (SHPROP)tumbled 2.4 percent to a three-month low. Poly Real Estate, China’s second- largest developer by market value, slid 3.2 percent to 11.21 yuan. China Vanke Co., the biggest, dropped 2.7 percent to 10.95 yuan. Gemdale, the third largest, lost 4.4 percent to 6.06 yuan.

Stock Valuations

The property stock gauge plunged 9.3 percent on March 4 after China’s cabinet told cities with “excessively fast” price gains to tighten home-purchase limits, through measures such as higher down-payment requirements for second mortgages and tougher regulation of a profits tax.

The Shanghai Composite is valued at 9.3 times earnings for the next 12 months, compared with the five-year average of 13.5, according to data compiled by Bloomberg. Trading volumes in the index were 25 percent lower than the 30-day average for this time of day.

Shares have also dropped amid concern regulators will resume approvals of initial public offerings, diverting liquidity from existing stocks. The China Securities Regulatory Commission suspended issuance of IPO shares in October, as investors’ appetite for new stocks waned amid equity-market declines that drove the Shanghai Composite to near four-year lows. The CSRC may restart the approval process of IPOs from June, the Shanghai Securities News reported on March 7, citing an unidentified person.

Separately, CSRC Chairman Guo Shuqing may be appointed as governor of Shandong province, the South China Morning Post reported today, citing people it didn’t identify. A press officer at the regulator said he hadn’t received information on the matter.

Guo, who took over as chairman in October 2011, has implemented changes such as cutting transaction costs, cracking down on insider trading and encouraging dividend payments. Under his watch, the commission also accelerated approvals for foreign investments in the nation’s capital markets through the Qualified Foreign Institutional Investors program.

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai atszhang5@bloomberg.net

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