China Stocks Retreat Most in Six Weeks; Developers Lead Decline

China Stocks Retreat Most in Six Weeks; Developers Lead Decline
April 18, 2010, 11:30 PM EDT

April 19 (Bloomberg) -- China’s stocks declined, sending the benchmark index to its biggest decline in six weeks, on concern economic growth will slow after the government stepped up measures to curb gains in the property market.

A gauge tracking real-estate stocks tumbled the most in three months, led by China Vanke Co. and Poly Real Estate Group Co., after the State Council ordered banks to stop lending to third-home buyers. Industrial & Commercial Bank of China Ltd., the country’s largest lender, slid 2 percent. Anhui Conch Cement Co. led losses by construction material companies.

The latest property curbs “probably will weigh on sentiment for a while,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors, which oversees $90 billion.

The Shanghai Composite Index fell 59.43, or 1.9 percent, to 3,070.88 at 10:25 a.m., the most since March 4. The gauge, Asia’s worst-performing stock market, has lost 6.3 percent in 2010 as the government unwound monetary stimulus to avert asset bubbles after banks extended record credit last year. The CSI 300 Index slid 2.3 percent to 3,279.15. All four contracts on the CSI 300 declined on the China Financial Futures Exchange.

Stocks across the Asian region fell, dragging the MSCI Asia Pacific Index down by the most in two months, on concern a U.S. suit against Goldman Sachs Group Inc. signals increasing regulatory scrutiny on financial companies.

Vanke slumped 3.5 percent to 8.72 yuan, the most since Dec. 22. Poly Real Estate declined 4.4 percent to 17.83 yuan, set for its lowest close in a year. The Se Shang Property Index slid 3.5 percent, the biggest drop since Jan. 26.

Property Measures

China told banks to stop loans for third-home purchases in cities with excessive property price gains and suspend lending to non-residents without tax returns or proof of social security contributions in that city, according to a statement by the State Council on April 17. Local governments may also limit the number of units that can be bought, according to the statement.

“These are the most draconian measures on the property market in history,” Jun Ma, Deutsche Bank’s Greater China chief economist, wrote in a note to clients today. Chinese press reports point to “panic selling” by investors who own more than one home in Shanghai, Beijing and Shenzhen, he said.

China’s latest moves to cool its property market come after previous measures failed to slow gains in housing prices, which rose at a record 11.7 percent in March. The world’s third- biggest economy this year told banks to set aside more deposits as reserves, raised mortgage rates and re-imposed a sales tax on homes.

Bank Losses

Prices of mid- and high-end properties may tumble 20 percent and monthly transaction volumes may slide more than 50 percent in the coming months, Ma said.

Banks declined on concern non-performing loans may increase. Industrial & Commercial Bank of China Ltd. lost 2 percent to 4.80 yuan. Bank of China Ltd., the third-largest lender, retreated 1.9 percent to 4.12 yuan. Industrial Bank Co. dropped 6.8 percent to 31.49 yuan, the most since Aug. 31.

“The latest measures on third-home mortgages will exacerbate concerns of asset quality and lower earnings estimates,” Chen Qi, a Shanghai-based analyst at CSC Securities HK Ltd., said in a telephone interview today.

Baoshan Iron & Steel Co., the nation’s largest steelmaker, slumped 4.3 percent to 7.31 yuan. Anhui Conch Cement, the largest cement producer, plunged 4.4 percent to 40 yuan. Jiangxi Copper Co. slipped 3 percent to 35.78 yuan. PetroChina dropped 1.8 percent to 12.81 yuan.

Gold futures slumped 2 percent, the most since Feb. 4, to $1,136.90 an ounce in New York. The Reuters/Jefferies CRB Index of 19 raw materials fell 1.2 percent to 276.29, the biggest decline since Feb. 25.

Investors should avoid property, banking, steel and construction material stocks as market reaction to the “austerity” measures may be negative in the near term, Jerry Lou and Allen Gui, Morgan Stanley analysts, wrote in a note to clients. They said a property tax is “finally coming close.”

Shanghai may tax individuals who own multiple properties, the China Times reported, citing an unidentified person close to the Ministry of Finance.