China Stocks Drop After Fuel Price Increase; Banks, Tsingtao Pace Declines
By Bloomberg News -
China Stocks Drop After Fuel Price Increase; Banks, Tsingtao Pace Declines - Bloomberg
China’s stocks fell, led by producers of consumer staples and banks, after the government raised fuel prices and concern grew over lenders’ profitability as the government tightens monetary policy.
Kweichow Moutai Co. sank to a one month-low amid speculation energy costs for companies will rise, damping earnings growth, after China increased the price of gasoline and diesel for the third time this year. Agricultural Bank Of China Ltd. lost 0.8 percent after Barclays Capital said the government’s higher requirements on loans to local governments will cut lenders’ capital adequacy ratios and profits.
“Higher oil prices may spur faster inflation, adding to investor concerns about future policy tightening,” said Zhang Kun, a strategist at Guotai Junan Securities Co. in Shanghai.
The Shanghai Composite Index retreated 26.22, or 0.9 percent, to 2,877.90 at the 3 p.m. close, the fifth decline in six days. The gauge climbed 1.8 percent yesterday as military tensions on the Korean peninsula eased. The CSI 300 Index fell 1.1 percent to 3,215.45.
The Shanghai Composite is Asia’s worst performing stock gauge this year with a 12 percent loss amid concern monetary tightening will slow economic growth and damp earnings. The government has ordered banks to set aside more money as reserves and raised interest rates to cool inflation and surging property prices that were spurred by record credit growth in 2009.
A gauge tracking consumer staples declined 1.3 percent, a fourth day of declines and the second-biggest loss among the CSI 300’s 10 industry groups.
Fuel Prices
Kweichow Moutai, China’s biggest liquor maker by market value, slumped 1.6 percent to 190.95 yuan, set for the lowest close since Nov. 23. Tsingtao Brewery Co., the second-biggest brewery by volume, dropped 2 percent to 35.79 yuan. Shenzhen Agricultural Products Co. slipped 3.6 percent to 18.46 yuan.
Gasoline will rise by as much as 4 percent to 310 yuan a metric ton and diesel by 300 yuan a ton, the National Development and Reform Commission said. Crude in New York has gained 9 percent since China last increased prices on Oct. 26.
“This is a long-delayed move as the government is concerned about inflation while refiners are suffering losses after crude costs soared,” said Hei Wei, an oil analyst with BOCOM International Holdings Co. in Beijing. “We think the 4 percent increase is far from enough to offset crude gains.”
China’s two largest refiners reversed earlier gains. China Petroleum and Chemical Corp. fell 0.4 percent to 8.23 yuan after advancing as much as 2.4 percent. PetroChina Co. erased an increase of 2.2 percent to trade 0.7 percent lower at 11.44 yuan.
Food Prices
Inflation in China accelerated to 5.1 percent last month from a year earlier, the biggest jump in 28 months. Chinese consumers are more concerned about rising prices than at any time in the past decade, the People’s Bank of China said on Dec. 15 in its quarterly survey of 20,000 households.
The stock measure tracking consumer staples producers has rallied 17 percent this year as food prices surged and investors sought companies most sheltered from inflation. Food inflation reached 10 percent in October, more than twice the 4.4 percent headline rate.
China’s stocks are poised for a “very strong” 2011 as food prices ease by April, said Donald Straszheim, director of China research at International Strategy & Investment Group.
“By March or April, China food prices will be off the front pages; and the active monetary tightening will be off the front pages as well,” he wrote in a report. “That will set up China equities, sideways of recent, volatile and scary-headline driven, for a very strong 2011.”
The index tracking financial companies slid 1.6 percent, the biggest drop on the CSI 300 and extending a 24 percent rout this year that was spurred by tighter curbs on lending.
Bank Loans
The China Banking Regulatory Commission may require lenders to assign 100 percent risk weightings for loans fully covered by cash flows, up from the current 50 percent, and as much as a 300 percent for uncovered loans, Barclays said in a note today, citing a China Business News report published yesterday. The risk-weighting rule has already been made official, the note said, citing unidentified banks.
Agricultural Bank, the nation’s third largest by assets, lost 1.1 percent to 2.62 yuan, the biggest drop since Dec. 8. China Construction Bank Corp. declined 0.4 percent to 4.70 yuan, extending a 22 percent plunge in 2010.
Agricultural Bank will be hurt most by the change, Barclays analysts May Yan and Allen Zhang wrote. The government is trying to limit risks stemming from last year’s surge in loans to local-government finance vehicles for roads, bridges and railroads. Chinese banks may struggle to recoup about 23 percent of the 7.7 trillion yuan ($1.2 trillion) credit they’ve extended, a person with knowledge of data collected by the industry regulator said in July.
--Irene Shen. With assistance by Winnie Zhu in Shanghai. Editors: Richard Frost, Margo Towie
To contact Bloomberg News staff for this story: Irene Shen in Shanghai at +86-21-6104-3049 or
ishen4@bloomberg.net
To contact the editor responsible for this story: Darren Boey at
dboey@bloomberg.net
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