Markets

Benchmark hits 8-week low

By Irenne Shen (China Daily)
Updated: 2010-12-10 09:38

Investors watch the price board of Chinese mainland stocks in Fuzhou, Fujian province.[Photo/China Daily]

Inflation fears and rumors of central bank rate rises send stocks tumbling

SHANGHAI - China's stocks fell, driving the benchmark index down to the lowest in almost two months, as inflation concerns and a think tank report saying property prices are inflated boosted prospects for more policy tightening.

China Vanke Co and Poly Real Estate Group Co slid more than 3 percent after the Chinese Academy of Social Sciences (CASS) said new homes in major cities are "overpriced" by an average of 30 percent. SAIC Motor Corp and Chongqing Brewery Co paced a retreat for consumer companies after Morgan Stanley said it recommended investors "underweight" the industry on valuations.

The Shanghai Composite Index slid 1.33 percent, to 2810.95 on Thursday, the lowest since Oct 11. The CSI 300 Index fell 1.53 percent to 3123.37.

Wednesday's move by the statistics bureau to bring forward the release of economic data, including inflation, signal an interest-rate increase may be imminent, said Glenn Maguire, chief Asia economist at Societe Generale SA.

A gauge of developers on the Shanghai Composite fell 1.8 percent, the most since Nov 26.

New homes in seven out of the 35 cities were more than 50 percent overpriced, according to the nnual housing reporfrom CASS.

The Shanghai gauge has lost 11 percent since reaching a high on Nov 8, extending this year's loss to 14 percent, on concern tighter monetary policy will slow growth in China.

Bank of Beijing Co fell 2.69 percent and Huaxia Bank Co declined 2.24 percent on Thursday. China Construction Bank Corp slipped 1.68 percent on Thursday.

China's reserve ratio for the nation's biggest lenders may rise to 20 percent next year from 18.5 percent currently, Maguire said in Hong Kong on Thursday. Banks were asked to set aside larger reserves twice last month after inflation reached 4.4 percent in October, the most since September 2008. China also raised borrowing costs in October for the first time since 2007 to cut money supply in the banking system.

Related readings:  Improving data boosts stocks for second day  Manufacturing sector growth puts spring in investors' step  Concerns over debt, rates spook investors  China's stocks close lower Tuesday

This coming weekend's inflation data may show consumer prices climbed 4.7 percent in November, according to the median estimate of 29 economists surveyed by Bloomberg.

SAIC lost 3.21 percent on Thursday before the release of November auto sales. Chongqing Brewery, partly owned by Carlsberg A/S, fell 10 percent.

China Railway Group Ltd and China CNR Corp led gains as investors speculated the world high-speed rail congress in Beijing will spur new orders.

China Railway Group rallied 5.92 percent on Thursday. China CNR rose 5.19 percent and CSR Corp jumped 7.28 percent on Thursday.

With big orders for high-speed railways at home and abroad, railway-related companies are one of the few sectors with solid growth prospects against a backdrop of an uncertain macro-economic environment," said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co.

The country formed ventures with Alstom SA and Bombardier Inc this week to help develop new rail systems. The government plans to spend as much as 4 trillion yuan ($600 billion) expanding rail coverage, the China Securities Journal reported on Wednesday, citing an unidentified person.

Bloomberg News