China Stocks Drop to Nine-Month Low on Economic Growth, Bank Loan Concern

23-Jun-2011

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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

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From Bloomberg,

China’s stocks fell to the lowest level in almost nine months after Nomura Holdings Inc. forecast the central bank will raise interest rates and Credit Suisse Group AG said the country is heading for a “sluggish landing.”

Industrial & Commercial Bank of China (601398) Ltd. and Bank of China Ltd. paced declines for lenders after Credit Suisse cut its rating on banking shares to “underweight.” PetroChina Co. fell 0.8 percent as crude traded near a four-month low. Poly Real Estate Group Co., China’s second-largest developer, rose to a two-month high on speculation the government won’t intensify housing curbs after prices cooled in some cities.

“The big picture is that there’s a capital crunch for the market after all these government tightening measures,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “It’s probably the worst time for stocks now.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, dropped 25.47, or 1 percent, to 2,617.35 as of 1:05 p.m. local time, set for the lowest close since Sept. 29 and extending last week’s 2.3 percent decline. The CSI 300 Index (SHSZ300) fell 0.8 percent to 2,870.21 today.

The Shanghai Composite has slumped 14 percent from this year’s high on April 18 on concern government measures to cool inflation will slow economic growth. The central bank has raised reserve requirements 12 times and interest rates four times since the start of last year. The stock index has lost 6.8 percent this year, extending the 14 percent retreat in 2010.

Rate Outlook

China is likely to raise rates within the next 10 days as price pressures encourage the government to end the longest pause since increases began in October, Nomura said.

The world’s second-biggest economy is maintaining momentum and “inflation is still high,” Nomura economist Sun Chi said in a phone interview from Hong Kong today. Sun reaffirmed a forecast for an increase by the end of June.

Inflation is likely to grow 5.5 percent in June, which is expected to be the fastest this year, the Shanghai Securities News reported over the weekend, citing Zheng Xinli, deputy director of the China Center for International Economic Exchanges. Inflation for the whole year is estimated at 4.8 percent, Zheng said at a conference yesterday, according to the newspaper.

The Shanghai Composite is valued at 12.2 times estimated earnings for this year, compared with a record low of 18.9 times set in January 2006, according to weekly data compiled by Bloomberg.

ICBC, the nation’s biggest listed lender, dropped 0.2 percent to 4.28 yuan. Bank of China, the third largest, fell 0.3 percent to 3.08 yuan. China Citic Bank Corp., the banking unit of the nation’s largest investment company, retreated 2.1 percent to 4.64 yuan.

‘Credit Overhang’

People’s Bank of China data show lenders face a larger- than-expected “credit overhang,” Credit Suisse analysts led by Vincent Chan wrote in a report. They cut their ratings on banking shares to “underweight” from “overweight,” while increasing utilities to “overweight” from “market weight.”

The analysts also lowered their 12-month forecast for Hong Kong’s Hang Seng China Enterprises Index to 15,000 from 17,500, and reduced the target for the Shanghai A-Share Stock Price Index to 3,000 from 3,650. Their estimate for the MSCI China Index was cut to 76 from 89, according to the report.

PetroChina, the nation’s biggest oil company, retreated 0.8 percent to 10.68 yuan. China Oilfield Services Ltd. (601808), the drilling unit of the nation’s largest offshore oil producer, retreated 2 percent to 16.45 yuan.

Oil Stocks

Oil for July delivery fell as much as 0.4 percent to $92.63 a barrel in electronic trading in New York today. The contract slipped 2 percent on June 17 to the lowest since Feb. 18.

Jiangxi Copper Co., China’s biggest producer of the metal, dropped 0.4 percent to 32.42 yuan. Tongling Nonferrous Metals Group Co., the second largest, slid 1.3 percent to 21.76 yuan.

Copper in London dropped for the third time in four days on concern Greece’s debt crisis may worsen after euro-area finance ministers failed to reach an agreement on disbursement of aid to the country. The metal for three-month delivery on the London Metal Exchange fell as much as 0.3 percent to $9,067.50 a metric ton.

Poly Real Estate gained 2.6 percent to 10.40 yuan, set for the highest close since April 26. China Vanke Co., the nation’s biggest listed property developer, rose 0.4 percent to 8.08 yuan. Gemdale Corp. added 0.8 percent to 6.12 yuan.

Developers Gain

Existing home prices in May fell from the previous month in 23 of 70 cities measured, the National Bureau of Statistics said June 18. That’s more than the 16 cities that posted declines in April, it said. Existing home prices in Beijing fell 0.2 percent from April while those in Shanghai increased 0.2 percent, according to the bureau.

Citic Securities Co. said it has turned “positive” on China stocks, citing government measures to finance construction of affordable housing, water conservancy projects and small companies. The brokerage had been “cautious” about the nation’s stocks since April.

The measures will offset a slowdown in the economy as growth in the third quarter is expected to hit a “low ebb,” analysts led by Xi Feng at the brokerage wrote in a report today.

–Zhang Shidong. Editor: Allen Wan

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-3040 or szhang5@bloomberg.net

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