China stocks slump, briefly enter bear market on loan concern
Thursday, 20 August 2009
SHANGHAI, Aug. 19 (Bloomberg): China's stocks tumbled, briefly driving the benchmark index into a so-called bear market, on concern economic growth will falter as banks rein in lending.
The Shanghai Composite Index lost 4.3 per cent to 2,785.58, as Citic Securities Co., the nation's biggest brokerage, slumped 7.8 per cent and China Vanke Co., the largest developer by market value, fell 5.6 per cent.
The gauge has slumped 19.8 per cent since Aug. 4, after more than doubling from November, as China rolled out a 4 trillion yuan ($585 billion) stimulus package. A plunge in new bank loans in July, disappointing earnings and concern the government will seek to damp property speculation has sapped confidence, driving losses close to the 20 per cent threshold for a bear market.
"It's irrational selling that has shattered market confidence," said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million in assets. "Some mutual funds have been reducing their stock holdings as they are pessimistic about the economic outlook."
China Everbright Securities Co., which had the smallest first-day gain of any new stock in Shanghai this year, slumped by the 10 per cent daily limit today. About 10 stocks fell for each that rose on the benchmark index.
"It's scary," Xu Xuehong, a 64-year-old retired worker in Shanghai who had about 300,000 yuan invested in shares, said in an interview at a branch of Shenyin & Wanguo Securities Co. "The decline is too rapid; I am not going to make new investments."
The market slump follows the lifting in June of a nine- month moratorium on initial shares sales that triggered about $1 billion worth of IPOs by eight companies including China Everbright, China State Construction Engineering Corp. and Sichuan Expressway Co.
The Shanghai index, the world's best-performing major market from Jan. 1 to Aug. 4, remains 59 per cent below its record level on Oct. 16, 2007. Of the so-called BRIC group of emerging economies that includes India and Brazil, only Russia is in a bear market.
Chinese stocks are "extremely frothy" and investors should have an "underweight" position in the country's shares, said Devan Kaloo, who oversees $11.5 billion as head of global emerging markets at Aberdeen Asset Management Ltd.
"I'm worried about a correction in a market that has been driven by cheap money," said Kaloo, whose Aberdeen Emerging Markets Fund has beaten 98 per cent of peers this year.
A slump in China's July lending to less than a quarter of June's level and disappointing earnings from companies including Yunnan Copper Industry Co. have weighed on shares.
"The current correction is reflecting the tightening in lending," said Andy Xie, a former Asian chief economist at Morgan Stanley, who correctly predicted in April 2007 that China's equities would tumble. "We've seen the peak of this market cycle."
An estimated 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China's Cabinet.
The market may fall a further 10 per cent, Xie said Aug. 17. The Shanghai index is trading at 30.3 times reported earnings, against 17.5 times for shares on the MSCI Emerging Markets Index, and remains 53 per cent higher than at the start of this year.
The economy expanded 7.9 per cent in the second quarter from a year earlier, rebounding from the weakest growth in almost a decade. Still, exports last month fell 23 per cent from a year earlier, while urban fixed-asset investment and industrial output both expanded less than economist estimates.
China Construction Bank Corp. President Zhang Jianguo said that the nation's second-largest bank will cut new lending by about 70 per cent in the second half to avert a surge in bad debt.
Real estate developers led today's decline, with the China Se Shang's Property Index falling 7.5 per cent. China Vanke fell 5.6 per cent to 11 yuan. Poly Real Estate Group Co., the second- biggest, dropped 5.6 per cent to 23.76 yuan.
Maanshan Iron & Steel Co. fell 7.5 per cent, the most in nine months, after posting a first-half net loss. Jiangxi Copper Co., China's biggest producer of the metal, lost 8.4 per cent as the metal slumped to its lowest in more than two weeks.
Everbright Securities tumbled by the maximum after yesterday advancing 30 per cent on its debut. The first-day gain for the Shanghai-based brokerage trailed the average 109 per cent of the seven other companies to list shares in China since the moratorium on IPOs ended.
The Hang Seng China Enterprises Index, which measures Hong Kong-listed shares of Chinese companies, dropped 1.6 per cent today to 11,260.83.
The Shanghai Composite Index lost 4.3 per cent to 2,785.58, as Citic Securities Co., the nation's biggest brokerage, slumped 7.8 per cent and China Vanke Co., the largest developer by market value, fell 5.6 per cent.
The gauge has slumped 19.8 per cent since Aug. 4, after more than doubling from November, as China rolled out a 4 trillion yuan ($585 billion) stimulus package. A plunge in new bank loans in July, disappointing earnings and concern the government will seek to damp property speculation has sapped confidence, driving losses close to the 20 per cent threshold for a bear market.
"It's irrational selling that has shattered market confidence," said Larry Wan, Shanghai-based deputy chief investment officer at KBC-Goldstate Fund Management Co., which oversees about $583 million in assets. "Some mutual funds have been reducing their stock holdings as they are pessimistic about the economic outlook."
China Everbright Securities Co., which had the smallest first-day gain of any new stock in Shanghai this year, slumped by the 10 per cent daily limit today. About 10 stocks fell for each that rose on the benchmark index.
"It's scary," Xu Xuehong, a 64-year-old retired worker in Shanghai who had about 300,000 yuan invested in shares, said in an interview at a branch of Shenyin & Wanguo Securities Co. "The decline is too rapid; I am not going to make new investments."
The market slump follows the lifting in June of a nine- month moratorium on initial shares sales that triggered about $1 billion worth of IPOs by eight companies including China Everbright, China State Construction Engineering Corp. and Sichuan Expressway Co.
The Shanghai index, the world's best-performing major market from Jan. 1 to Aug. 4, remains 59 per cent below its record level on Oct. 16, 2007. Of the so-called BRIC group of emerging economies that includes India and Brazil, only Russia is in a bear market.
Chinese stocks are "extremely frothy" and investors should have an "underweight" position in the country's shares, said Devan Kaloo, who oversees $11.5 billion as head of global emerging markets at Aberdeen Asset Management Ltd.
"I'm worried about a correction in a market that has been driven by cheap money," said Kaloo, whose Aberdeen Emerging Markets Fund has beaten 98 per cent of peers this year.
A slump in China's July lending to less than a quarter of June's level and disappointing earnings from companies including Yunnan Copper Industry Co. have weighed on shares.
"The current correction is reflecting the tightening in lending," said Andy Xie, a former Asian chief economist at Morgan Stanley, who correctly predicted in April 2007 that China's equities would tumble. "We've seen the peak of this market cycle."
An estimated 1.16 trillion yuan of loans were invested in stocks in the first five months of this year, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China's Cabinet.
The market may fall a further 10 per cent, Xie said Aug. 17. The Shanghai index is trading at 30.3 times reported earnings, against 17.5 times for shares on the MSCI Emerging Markets Index, and remains 53 per cent higher than at the start of this year.
The economy expanded 7.9 per cent in the second quarter from a year earlier, rebounding from the weakest growth in almost a decade. Still, exports last month fell 23 per cent from a year earlier, while urban fixed-asset investment and industrial output both expanded less than economist estimates.
China Construction Bank Corp. President Zhang Jianguo said that the nation's second-largest bank will cut new lending by about 70 per cent in the second half to avert a surge in bad debt.
Real estate developers led today's decline, with the China Se Shang's Property Index falling 7.5 per cent. China Vanke fell 5.6 per cent to 11 yuan. Poly Real Estate Group Co., the second- biggest, dropped 5.6 per cent to 23.76 yuan.
Maanshan Iron & Steel Co. fell 7.5 per cent, the most in nine months, after posting a first-half net loss. Jiangxi Copper Co., China's biggest producer of the metal, lost 8.4 per cent as the metal slumped to its lowest in more than two weeks.
Everbright Securities tumbled by the maximum after yesterday advancing 30 per cent on its debut. The first-day gain for the Shanghai-based brokerage trailed the average 109 per cent of the seven other companies to list shares in China since the moratorium on IPOs ended.
The Hang Seng China Enterprises Index, which measures Hong Kong-listed shares of Chinese companies, dropped 1.6 per cent today to 11,260.83.