Asian Stocks Drop as China Developers Plunge on Loan-Curb Report

Feb 24, 2014 6:18 am ET

Feb. 24 (Bloomberg) -- Asian stocks fell, after the gauge posted two straight weekly gains, as Chinese real estate developers led losses amid concern some banks have tightened lending to the industry.

China Overseas Land & Investment Ltd. slid 3.6 percent as a measure of property companies in Hong Kong dropped the most since July. China Petroleum & Chemical Corp., the oil refiner known as Sinopec, dropped 3.8 percent in Shanghai, paring gains since it announced plans to sell a stake to private investors. Belle International Holdings Ltd. jumped 5.9 percent.

The MSCI Asia Pacific Index slid 0.2 percent to 137.07 at 6:56 p.m. in Hong Kong after earlier rising as much as 0.4 percent. The Hang Seng Composite Property & Construction Index lost 2.7 percent, its largest drop in seven months, after Shanghai Securities News reported that Industrial Bank Co. and unidentified other banks have tightened lending to the property sector and related industries such as steel and cement, without saying where it got the information.

“The outlook doesn’t look rosy for developers,” Andrew Sullivan, a Hong Kong-based director at Kim Eng Securities, said by phone. “There are reports some developers are starting to cut prices as they’re under pressure to find financing for their projects. Investors are turning cautious ahead of the results reporting season.”

Regional Gauges

Hong Kong’s Hang Seng Index sank 0.8 percent as China Overseas Land fell 3.6 percent to HK$20.25 and Guangzhou R&F Properties Co. dropped 4.2 percent to HK$10.42. China’s Shanghai Composite retreated 1.8 percent, while Taiwan’s Taiex Index declined 0.5 percent.

Japan’s Topix index lost 0.3 percent and South Korea’s Kospi index slid 0.5 percent. Singapore’s Straits Times Index rose 0.2 percent, while India’s S&P BSE Sensex gained 0.5 percent. Australia’s S&P/ASX 200 Index was little changed. Transfield Services Ltd. posted the largest gain on the measure, soaring 25 percent to 99 Australian cents. The company won a contract to provide services at Australian immigration- processing centers. New Zealand’s NZX 50 Index added 0.9 percent.

The MSCI Asia Pacific Index climbed 5.3 percent from this year’s low on Feb. 4, leaving the gauge trading at 12.9 times the estimated earnings of its constituent companies.

Mezzanine Financing

Industrial Bank issued a notice before the Lunar New Year to suspend mezzanine financing and supply-chain financing in the real estate sector until the end of March, according to the Shanghai Securities News report, which cited an image of the notice circulated online.

Brokerages including Guotai Junan Securities Co., Haitong Securities Co. and Shenyin & Wanguo Securities Co. separately held internal meetings yesterday to discuss speculation some banks suspended lending to developers, the 21st Century Business Herald reported yesterday, without citing anyone.

The media reports of a halt in lending are “partly true,” analysts led by Qiu Guanhua at Guotai Junan wrote in a report. The suspension will last to the end of next month, they wrote.

Some Chinese developers may default on their debt as property trust loans worth about 350 billion yuan ($57 billion) mature this year, according to Jefferies Hong Kong Ltd. analyst Venant Chiang.

Group of 20 finance ministers and central bank governors who met in Sydney this weekend pledged to maintain stimulus measures and boost global growth by more than 2 percent above the trajectory implied by current policies.

Growth Prospects

People’s Bank of China Governor Zhou Xiaochuan said the country’s expansion prospects of 7 to 8 percent growth are suitable for the nation and can boost the global economy. Finance Minister Lou Jiwei said possible defaults in Chinese wealth-management products don’t reflect a “big problem,” and weakness in the yuan is within the normal range.

The timing of stimulus pullback in developed economies will depend on the outlook for prices and growth, G-20 finance ministers and central bank governors said.

“It’s good to see plans for a fiscal expansion,” said Jonathan Crown, who helps oversee $149 billion at Threadneedle Asset Management Ltd. “We look at that very positively and hopefully that will drive growth for the next few years.” He spoke in a Bloomberg TV interview in Hong Kong.

Futures on the S&P 500 rose less than 0.1 percent today after the equity benchmark dropped 0.2 percent on Feb. 21. U.S. stocks fell last week as the Federal Reserve said it likely will continue reducing stimulus, overshadowing optimism about takeovers.

Sinopec Falls

Sinopec fell 3.8 percent to 4.82 yuan in Shanghai, while its Hong Kong-listed shares slipped 1.7 percent to HK$6.43. Jefferies Group LLC said a recent rally on a plan to sell a stake to private investors was unjustified, citing its plans aimed at raising capital instead of reforming the state- controlled energy producer.

Belle International jumped 5.9 percent to HK$9.32 after reporting yesterday full-year net income increased 3.2 percent to 4.49 billion yuan from a year earlier. The retailer has approached Tencent and other e-commerce operators to help expand its online platform amid rising competition, Chief Executive Officer Sheng Baijiao said at a briefing today in Hong Kong.

Boart Longyear Ltd. sank 15 percent in Sydney to 36 Australian cents after the drilling-services company refrained from giving investors revenue and earnings forecasts.

Of the 386 companies on the Asia-Pacific measure that have reported quarterly earnings since the start of the year and for which Bloomberg compiles estimates, 53 percent topped forecasts.

NewOcean Energy Holdings Ltd. tumbled 14 percent to HK$7.24, its biggest drop since April 2009. Chinese-language Capital Week magazine’s report alleging the company misreported earnings is not true, Managing Director Lawrence Shum said in a phone interview.

--Editor: Jim Powell