China's Stocks Fall to 14-Month Low on Policy, Economy Outlook - BusinessWeek

September 23, 2011, 12:17 AM EDT By Bloomberg News

Sept. 23 (Bloomberg) -- China’s stocks fell, dragging the benchmark index to its lowest level in more than 14 months, on concern the global economy may not avoid entering a recession.

Bank of Communications Co. dropped to the lowest level in almost seven weeks after the central bank asked lenders to maintain a stable loan-to-deposit ratio during public holidays next month. Kweichow Moutai Co. retreated to a 10-week low after the Guangzhou Daily said the government had ordered liquor makers to stop increasing prices.

The Shanghai Composite Index lost 0.9 percent to 2,420.94 as of the 11:30 a.m. local-time break, set to close at the lowest level since July 8, 2010. The CSI 300 Index dropped 1.2 percent to 2,654.35. The MSCI All-Country World Index of 45 nations entered a bear market yesterday for the first time in more than two years, after the worsening European debt crisis and threat of a U.S. recession erased more than $10 trillion from equities since May.

“The dim outlook for the global economy has made investors extremely pessimistic,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “There’s no good news worldwide and the announced policies seem to be not strong enough to save the economy from entering recession.”

The Shanghai Composite Index has slumped 12 percent this quarter, extending the loss to 14 percent for the year as the government increased measures to cool inflation that’s at the highest in almost three years.

Government Support

The gauge has tumbled 21 percent from this year’s peak on April 18, exceeding the 20 percent slump that some investors define as a bear market. Stocks in the gauge trade at 11.1 times estimated profit, the lowest level on record, according to data compiled by Bloomberg.

The Shanghai Composite pared an earlier loss of 1.8 percent amid speculation the government will take steps to support financial markets. China’s social security fund plans to invest more than 10 billion yuan ($1.6 billion) in the nation’s stock market, Securities Times reported today, citing an unidentified person.

“Speculation on government’s support always works in China’s market, no matter it’s true or not,” Dazhong’s Wu said. “That would help lift the index for the short-term but may need several round of injection to turn the pessimistic sentiment around.”

Jiangxi Copper

The MSCI All-Country World Index has lost 23 percent since peaking on May 2. Stocks fell yesterday on a Federal Reserve assessment that turmoil caused by Europe’s crisis is taking a toll on the economy and as a measure of Chinese manufacturing weakened. Central bankers and finance ministers will discuss the economic outlook today at annual meetings of the International Monetary Fund and World Bank in Washington.

Jiangxi Copper Co., China’s biggest producer of the metal, slumped 3.7 percent to 28 yuan, set for the lowest close since Aug. 12, 2010. Copper futures for December delivery dropped 7.3 percent to close at $3.4885 a pound in New York, the biggest drop for a most-active contract since Oct. 30, 2008.

China Vanke Co., the nation’s largest developer, retreated 1.1 percent to 7.38 yuan. Gemdale Corp. slid 1.5 percent to 5.27 yuan. Some trust firms have halted real estate trust businesses on quota restrictions, the Shanghai Securities News reported.

Greentown China

Several trust firms confirmed they had received requests from the China Banking Regulatory Commission to report on their business with Greentown China Holdings Ltd., the newspaper said. Greentown, the largest builder in the eastern province of Zhejiang, said it has no trouble financing its loans and denied a Reuters report it’s being investigated by the nation’s banking regulator.

Bank of Communications slid 1.3 percent to 4.50 yuan, the lowest level since Aug. 8. Agricultural Bank of China Ltd. slipped 1.2 percent to 2.49 yuan.

China’s central bank has asked commercial banks to maintain a stable loan-to-deposit ratio during the National Day holiday which begins on Oct. 1, the Oriental Morning Post reported today, citing unidentified people. The difference of banks’ outstanding deposits on Sept. 30 and on Oct. 8 must not exceed 5 percent, the newspaper said.

Liquor producers fell. China’s National Development and Reform Commission has told Kweichow Moutai, Wuliangye Yibin Co. and other domestic liquor makers to halt price increases for their products, the Guangzhou Daily reported today, citing the China Alcoholic Drinks Industry Association. The move is aimed at stabilizing prices and ensuring supply in the market, the newspaper said.

Kweichow Moutai declined 2.2 percent to 193.29 yuan, set to close at the lowest level since July 14. Wuliangye Yibin dropped 1.4 percent to 36.66 yuan. Luzhou Laojiao Co. sank 5.1 percent to 39.70 yuan, heading for the biggest drop since Dec. 6, 2010.

--Irene Shen. Editors: Darren Boey, Matthew Oakley

To contact Bloomberg News staff for this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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