China Stocks Drop as Property Shares Plunge Most in Eight Months

Feb 24, 2014 4:19 am ET

Feb. 24 (Bloomberg) -- China’s stocks fell, sending the benchmark index to its biggest loss in seven weeks, amid speculation that reduced lending to the property industry will curb growth in the world’s second-largest economy.

China Vanke Co. and Poly Real Estate Group Co., the nation’s biggest developers, plunged more than 6 percent after the Shanghai Securities News reported Industrial Bank Co. and other banks have tightened lending to the property sector. Industrial Bank led declines for lenders with a 3.7 percent loss. China Petroleum & Chemical Corp., the refiner known as Sinopec, slid as much as 6.4 percent, erasing gains since it announced plans to sell a stake to private investors.

The Shanghai Composite Index dropped 1.8 percent to 2,076.69 at the close. A measure of property stocks in the Shanghai gauge tumbled the most since June, extending declines after a report showed slowing new-home price growth. The central bank singled out developers this month as one of three types of borrowers most at risk as authorities seek to tame debt that the Chinese Academy of Social Sciences estimates at 215 percent of gross domestic product.

“Property prices are at a high level and the industry may enter a correction period,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Given the fact that the property industry is a pillar of China’s economy, growth will lose steam once the industry suffers. That’s also bad for global growth.”

The CSI 300 Index declined 2.2 percent to 2,214.51. The Hang Seng China Enterprises Index slid 1.4 percent. The Bloomberg China-US Equity Index fell 0.5 percent on Feb. 21.

Developers Slide

A gauge of property stocks in the Shanghai index slid 5.4 percent, the most among five industry groups. Vanke, the nation’s biggest listed developer, tumbled 6.6 percent to 6.69 yuan. Poly Real Estate plunged 8.5 percent to 6.77 yuan. Gemdale Corp. fell 7.7 percent to 5.91 yuan.

Industrial Bank, part-owned by a unit of HSBC Holdings Plc, may suspend some property-related loans through the end of March, the Shanghai Securities News reported, without saying where it got the information. A press official from Industrial Bank declined to comment on the report. The stock fell 3.7 percent to 9.12 yuan.

Brokerages including Guotai Junan Securities Co., Haitong Securities Co. and Shenyin & Wanguo Securities Co. separately held internal meetings on Feb. 23 to discuss speculation that 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.

Home Prices

New home price growth in China’s first-tier cities slowed in January after local governments implemented property measures to rein in escalating values and banks tightened lending.

Home prices in the southern business hubs of Guangzhou and Shenzhen rose 19 percent and 18 percent, respectively, from a year earlier, the National Bureau of Statistics said in a statement today. That was the slowest pace since July. Prices in Beijing jumped 15 percent, the slowest since August, and increased 17.5 percent in Shanghai, the least since September.

Qingdao Haier Co., China’s biggest refrigerator maker, tumbled 10 percent to 18.63 yuan. The plunge in property stocks affects other industries including home appliances, while first quarters are “low season” for sales, Zhigang Yang, an analyst at Guodu Securities Co., said in a phone interview.

Bonds of Hong Kong-listed developers dropped.

Property Bonds

The yield on Agile Property Holdings Ltd.’s $500 million of 8.375 percent notes due February 2019 rose 13 basis points, or 0.13 percentage point, to 8.41 percent as of 5:15 p.m. in Hong Kong, according to data compiled by Bloomberg. The yield on Evergrande Real Estate Group Ltd.’s $1.35 billion of 13 percent securities maturing in January 2015 jumped 25 basis points, the most since Feb. 4, to 6.10 percent.

China Minsheng Banking Corp., the nation’s first privately owned bank, retreated 3.3 percent in Shanghai and 2.8 percent in Hong Kong. Industrial & Commercial Bank of China Ltd., the nation’s biggest listed lender, lost 2 percent in Shanghai.

Finance Minister Lou Jiwei played down the risks from shadow banking as central bank Governor Zhou Xiaochuan signaled that the nation’s economy can sustain growth of between 7 percent and 8 percent.

Possible defaults in some wealth-management products don’t reflect a “big problem” and recent yuan weakness is within the normal range, Lou told Bloomberg News. China’s expansion prospects are suitable for the nation and can boost global economic growth, Zhou said.

Sinopec Loss

The Chinese currency extended a decline from the biggest weekly drop in more than two years after the central bank weakened the currency’s reference rate for the fifth day amid concern the economy is slowing. The yuan spot rate dropped 0.01 percent to 6.0984 per dollar as of 4:40 p.m. in Shanghai.

Sinopec slumped 3.8 percent to 4.82 yuan for a two-day loss of 6.6 percent after Jefferies Group LLC said a recent rally on a plan to sell a stake to private investors was unjustified because the company’s plans are aimed at raising capital instead of reforming the state-controlled energy producer. The stock fell 1.7 percent in Hong Kong.

The Shanghai Composite has rebounded 4.3 percent from its Jan. 20 low, as new credit rose to a record last month and investors anticipated economic reforms at the annual meeting of the National People’s Congress that begins March 5.

The index is valued at 7.7 times 12-month projected earnings, compared with the five-year average multiple of 12.3, according to data compiled by Bloomberg. Trading volumes in the measure were 31 percent above the 30-day average today, Bloomberg data showed.

--Zhang Shidong, with assistance from David Yong in Singapore and Jack Gao in Shanghai. Editors: Allen Wan, Michael Patterson