Most China Stocks Fall on Property Curb, Manufacturing Concerns

Most Chinese stocks fell after a

manufacturing gauge declined and on speculation the government

will announce property curbs. A rally for energy shares almost

erased a loss of as much as 1.3 percent for the benchmark index.

China Vanke Co. and Poly Real Estate Group Co., the

nation’s two biggest developers, slid at least 3 percent. New

China Life Insurance Co. dropped the most since September after

Zurich Insurance Group AG sold its entire stake. Air China Ltd. (601111)

paced gains for carriers for a second day. PetroChina Co. and

Yanzhou Coal Mining Co. led a rally for oil and coal companies.

About five stocks fell for every three that rose on the

benchmark Shanghai Composite Index, which slipped less than 0.1

percent to 2,205.77 at the close. A Chinese manufacturing gauge

known as the flash PMI declined for the first time in four

months. Finance Minister Lou Jiwei told the People’s Daily that

the government will increase taxes for owning properties.

“There’s concern about more curbs in the property

market,” said Tang Yonggang, an analyst at Hongyuan Securities

Co. in Beijing. “With property prices going up and talk of

higher taxes, there are a lot of concerns and uncertainty about

how taxes are going to be implemented. The flash PMI didn’t help

sentiment.”

The Hang Seng China Enterprises Index (HSCEI) slid for the first

time in six days, losing 0.9 percent to 11,337.30 at 3:51 p.m.,

after minutes from the U.S. Federal Reserve’s last meeting

signaled U.S. stimulus may be reduced in coming months. The CSI

300 dropped 0.6 percent to close at 2,409.99.

Manufacturing Report

The Shanghai index had gained 3 percent this month through

yesterday after the government pledged to ease the one-child

policy and boost private investment as part of the biggest

package of economic reforms since the 1990s. The measure trades

at 8.7 times projected profit, compared with the five-year

average multiple of 12.5, according to data compiled by

Bloomberg. Its trading volumes were 18 percent above the 30-day

average for this time of day, data showed.

The preliminary 50.4 reading in November for a Purchasing

Managers’ Index released by HSBC Holdings Plc and Markit

Economics, known as the flash PMI, compared with a 50.8 median

estimate from analysts surveyed by Bloomberg News. The final

number for October was 50.9, and levels above 50 indicate

expansion.

Slower manufacturing gains would add challenges for Premier
Li Keqiang in carrying out a reform package that includes

loosening controls on interest rates and giving farmers more

land rights. Expansion headwinds may intensify after last

month’s slowdown in credit growth that suggests Li is trying to

contain financial risks as home prices surge.

‘Taking Profits’

“The market is taking profits after gains from the past

few days on reforms by the government,” said Zhang Gang,

strategist at Central China Securities in Shanghai. “There’s

currently a lack of further drive, but it’s only temporary. The

economy is already stable and there will be more news on the

implementation of reforms so further downside is unlikely.”

A gauge of financial companies in the CSI 300 slid 1

percent, the second-most among 10 industry groups. New China

Life, the nation’s third-largest life insurer by premium income

last year, dropped 3.2 percent in Shanghai and 1.3 percent in
Hong Kong. Zurich Insurance sold its entire stake in New China

Life for $943 million, according to deal terms obtained by

Bloomberg News, with Swiss Re Ltd. (SREN) agreeing to buy just over

half of the stock.

China Vanke fell 3 percent to 8.83 yuan while Poly Real

Estate retreated 3 percent to 8.96 yuan. While increasing taxes

for owning properties, the government will cut taxes and fees

for property construction and transactions, Finance Minister Lou

said in the interview with the People’s Daily.

Higher Taxes

China may also use a higher tax rate in its property tax

trials and increase “significantly” the scope of residence

properties that must pay the tax, the China Securities Journal

reported today. The cities of Shanghai and Chongqing have

already started experimenting with property taxes.

A measure of energy companies in the CSI 300 rose 1.3

percent, the most among the industry groups. The sub-index’s

price-to-book ratio is at 14.5 times, compared with a five-year

average of 16.5 multiple. PetroChina, the nation’s biggest oil

company, gained 1.7 percent to 8.03 yuan, while Yanzhou Coal

Mining Co. surged 3 percent to 10.17 yuan.

Goldman Upgrade

“The economy is not doing too bad and reforms may be

happening next year so there are not many reasons to keep

selling,” said Xu Shengjun, an analyst at Jianghai Securities

Co. in Shanghai. “The downside is very limited as risks have

been removed. Investors will look at cheap blue chips to buy

such as the coal and energy stocks.”

Air China gained 8.8 percent in Hong Kong and 2.2 percent

in Shanghai amid speculation the nation’s airlines will benefit

from yuan appreciation and the opening up of airspace that may

ease traffic congestion. The Shanghai Securities News reported

yesterday China may issue airspace management rules as early as

the end of this year. The People’s Bank of China will broaden

the yuan’s daily trading limit, Governor Zhou Xiaochuan said

this week, without giving a timeframe.

“I think one thing on top of my mind is PBOC’s widening

the band on currency exchange rates, as the RMB appreciates

more, it’s obviously beneficial for airlines,” says Patrick Xu,

Hong Kong-based analyst with Barclays. “There talk about the

reform of airspace. That helps share prices.”

Goldman Sachs Group Inc. upgraded China’s stocks to

overweight and boosted its forecasts for the nation’s economic

growth and the yuan next year. The full document from the top-level Communist Party meeting has “reinvigorated” market

expectations on reform and China’s longer-term growth prospects,

strategists including Timothy Moe wrote in a report.

Goldman Sachs favors reform beneficiaries and recommends

stocks that revolve around the theme of mass-market consumption,

healthcare, brokers and defense. It is also overweight Chinese

banks which are “trading at very low absolute valuations.”

The Bloomberg China-US Equity Index slid 0.9 percent in New

York yesterday, while the db X-trackers Harvest CSI 300 China A-Shares Fund lost 0.7 percent.

To contact the reporter on this story:

Weiyi Lim in Singapore at

wlim26@bloomberg.net

To contact the editor responsible for this story:
Michael Patterson at

mpatterson10@bloomberg.net

Most China Stocks Fall on Property Curb, Manufacturing Concerns