Money

Shares down on economic deceleration

By Zhang Shidong (China Daily)
Updated: 2010-06-02 09:18

SHANGHAI - Mainland stocks fell for a third day after manufacturing grew slower than expected last month and property transactions dropped in major cities, signaling a deceleration for the world's third-biggest economy.

Poly Real Estate Group Co led declines among developers after Shanghai Securities News reported fewer real estate closings in Beijing and Shanghai. Industrial companies including Anhui Conch Cement Co fell after the Purchasing Managers' Index slid to 53.9 from 55.7 in April. PetroChina Co gained after China announced it will raise gas prices.

"Growth is slowing but it's still unlikely the government will delay the exit of stimulus plans implemented during the financial crisis," said Zhang Ling, a fund manager at Shanghai River Fund Management Co. "The government wants to see a shift in its growth model to consumption from investment and exports. It would rather sacrifice some growth to achieve that purpose."

The Shanghai Composite Index dropped 23.86, or 0.9 percent, to close at 2568.28, the lowest since May 20.

Manufacturing slowdown

The Federation of Logistics and Purchasing's manufacturing figure was less than the median 54.5 estimate in a Bloomberg News survey of 18 economists. Readings above 50 indicate an expansion. Another purchasing managers' index released on Tuesday by HSBC Holdings Plc and Markit Economics fell to 52.7 in May from a revised 55.2 in April.

"The manufacturing figure is delivering direct evidence that the economy is slowing down," said Li Jun, a strategist at Central China Securities Holdings Co in Shanghai. "The market may fall further."

The People's Bank of China pushed up yields on one-year bills for the first time in four months. The central bank sold one-year bills at a yield of 2.0096 percent, from 1.9264 percent last week, according to a statement on its website on Tuesday.

A government crackdown on property speculation is cooling the economy by damping sales and construction, while Europe's debt crisis could exacerbate a slowdown by cutting demand for exports. China's policy makers may delay raising benchmark interest rates or letting the yuan appreciate against the dollar even after the economy grew 11.9 percent in the first quarter.

Property spillover

Related readings:  China property stocks more attractive on valuation, Citi says  China shares hit 11-month low on overheating fears  China stocks down Monday, adding to monthly losses  China stocks close slightly lower, led by weak property

"Back in mid-April, the Chinese government introduced a series of measures to tighten control of the property sector," Jing Ulrich, chairwoman of China equities and commodities at JPMorgan Chase & Co, said in a Bloomberg Television interview. "Since then we've seen transaction volumes fall, we've seen the stock market correcting and in the meantime, I think the sentiment is spilling over to the industrial sector as well."

Nouriel Roubini, the New York University professor who predicted the global financial crisis before markets peaked, said the Brazilian, Chinese and Indian economies may be overheating and developing asset bubbles.

Chinese economic growth may slow to an annual rate of 7 percent to 8 percent by the end of the year or early 2011, from 11.9 percent in the first quarter of 2010, Roubini said in Sao Paulo. China's challenge is to boost domestic demand to sustain an economic expansion that has been based so far on investments and exports, he said.

Hang Seng declines

The Hang Seng Index declined 1.4 percent to 19496.95 at the close after rising as much as 0.2 percent. Shares on the gauge are priced at an average 12.8 times estimated earnings, down from 18 times on Nov 16, Bloomberg data show.

The Hang Seng China Enterprises Index of so-called H-shares of Chinese companies slipped 2.3 percent to 11233.96.

Bloomberg News