Markets

Markets continue losing streak - May 30

By Irene Shen (China Daily)
Updated: 2011-05-31 10:08

China Vanke Co fell 1.3 percent to 7.80 yuan ($1.2) on Monday. It's Vanke's lowest close since July 21 last year. [Photo/China Daily]

Investors remain jittery at prospect of new rates hikes, property taxes

SHANGHAI - Stocks on the Chinese mainland stocks fell for an eighth day, the longest losing streak since December 2008. The retreat came on concerns interest rates will rise, a property tax may be expanded nationwide and power shortages will cut production capacity.

China Vanke Co, the nation's largest publicly traded developer, dropped to a 10-month low after the Oriental Morning Post said the government may raise borrowing costs next month. Sany Heavy Industry Co slumped for a ninth day, leading declines for industrial companies, on speculation that power shortages will cut production capacity.

Industrial and Commercial Bank China Ltd surged 3.9 percent on the prospect the shares are undervalued after this year's stock market slump.

"The market is deluged with negative news," said Tu Jun, a strategist at Shanghai Securities Co. "Investors seem to have reached a consensus that stocks are heading lower while the tightening environment continues."

Related readings:  Chinese shares close lower on Monday  China stock index futures open mixed Monday  Hong Kong stocks close 0.29% higher

The Shanghai Composite Index slipped 3.6 points to 2706.36 at the 3 pm close, erasing a gain of as much as 0.7 percent and capping an eight-day retreat of 5.8 percent. More than four stocks fell for every one that rose on the gauge on Monday. The CSI 300 Index declined 0.3 percent to 2954.51.

Shares traded in Shanghai are valued at 15.3 times reported earnings, which is 9 percent lower than the average multiple seen during the previous three "troughs" in January 1996, November 2005 and October 2008, Credit Suisse Group AG analysts led by Sakthi Siva wrote in a report.

The Shanghai Composite has plunged 11 percent from this year's high on April 18, a sign to some investors that the market has entered a correction. The gauge has dropped 3.6 percent this year on signs growth in the world's second-largest economy is slowing after the central bank raised the reserve requirement ratio for banks 11 times and boosted interest rates four times to cool inflation.

China Vanke fell 1.3 percent to 7.80 yuan ($1.2), the lowest close since July 21. Poly Real Estate Group Co declined 3.3 percent to 9.51 yuan.

China's June consumer prices may increase about 5.7 percent from a year earlier and interest rates will likely be raised next month, the Oriental Morning Post reported on Monday, citing Li Xunlei, chief economist at Guotai Junan Securities Co. A property tax may be expanded nationwide after revising a trial program imposed on the cities of Chongqing and Shanghai, Xinhua News Agency reported on Sunday, citing Chongqing Mayor Huang Qifan. Construction of large homes fell, and luxury home sales and prices declined after Chongqing started the trial on Jan 28, Xinhua cited Huang as saying.

China's 383 mutual funds reduced their holdings of stocks by 3.04 percentage points to 72.1 percent of their combined portfolios last week from the previous week, the Shanghai Securities News reported on Monday. The mutual funds cut their holdings on concern that tighter liquidity and slowing economic growth will hurt the market, the newspaper reported, citing a report by Guodu Securities Co.

Sany Heavy Industry Co fell 2.5 percent to 15.32 yuan, its lowest close since Feb 24. China Shipbuilding Industry Co slumped 3 percent to 11.03 yuan.

China's power producers may curb operating hours to reduce financial losses even as the nation faces an electricity shortage that may be the worst on record.

"We expect a continuous deceleration in utilization hours at coal-fired power plants, worsening the power shortage," Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd, wrote in a note on May 27. Average net profit margins in the first quarter were "razor thin" at less than 1 percent, with about half the plants posting losses, she said. Coal-fired generators produce about three-quarters of China's power. Coal has risen more than 30 percent since the government last increased electricity tariffs nationwide in November 2009.

Societe Generale SA has an "underweight" recommendation on Chinese stocks and expects a 10 percent "upside" over the next 12 months in the "best-case scenario," said Todd Martin, an Asia equity strategist at the company.

"The bank expects two more rate increases and three more increases in the reserve requirement "until next year", Martin said in the interview on Monday. Higher borrowing costs may help earnings of the biggest banks by boosting net interest margins.

"The big banks benefit from their defensive features and basically the bank industry is undervalued," said Zhang Jing, an analyst at China Minzu Securities .

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