China’s Stocks Fall, Capping Biggest Weekly Drop in Five Years

By Zhang Shidong

Feb. 2 (Bloomberg) — China’s stocks had their biggest weekly decline in five years on concern that prices have climbed to unsustainable levels, after the Shanghai Composite Index more than doubled in the past 12 months.

A correction is now in full swing,'' said Zhang Shuntai, who oversees the equivalent of $127 million at Zhonghai Fund Management Co. in Shanghai. Lawmaker Cheng Siwei and Haitong Securities Co., China's fourth largest brokerage by assets, in the last two days said the market is overvalued. Stock sales by companies including Ping An Insurance (Group) Co. and Industrial Bank Co. are also fanning concern a share glut will sap investor demand. The Shanghai Composite tumbled 4 percent today to close at 2673.21, bringing its weekly decline to 7.3 percent. The drop this week was the biggest since January 2002. The Shanghai and Shenzhen 300 Index, which tracks yuan-denominated A shares listed on China's two exchanges, dropped 97.17, or 4.1 percent, to 2298.00. The measure plunged 8.6 percent this week, the biggest slide since it was introduced in April 2005. Today's drop in Chinese stocks was the biggest percentage move among markets included in global benchmarks. China Vanke Co., the nation's biggest property developer, fell 1.23 yuan, or 7.9 percent, to 14.42 today. China Minsheng Banking Corp., the first privately controlled bank, dropped 0.78 yuan, or 6.4 percent, to 11.51. Citic Securities Co., the biggest publicly traded brokerage, lost 2.61 yuan, or 7.3 percent, to 33.16. Baoshan Iron & Steel Co., China's No. 1 steelmaker, declined 0.61 yuan, or 6.5 percent, to 8.81. Share Sales The Shanghai Composite, the Shenzhen Composite Index and the 300 index have all climbed more than 100 percent in the past year. Shares in the 300 index are valued at 34 times earnings on average, the highest in the Asia-Pacific region. That's encouraging companies to sell shares. Ping An, China's second-largest insurer, plans to raise more than $4 billion in a forthcoming domestic share sale and today began taking bids from institutional investors. Industrial Bank, part-owned by a unit of HSBC Holdings Plc, will start trading on Feb. 5 in Shanghai after the company raised 16 billion yuan ($2.06 billion) in an initial public offering. Chongqing Iron & Steel Co., a Hong Kong-listed Chinese steelmaker, said Jan. 30 it plans to sell 350 million shares in Shanghai starting Feb. 5. China's stocks surged as a government plan to make more than $200 billion of state-owned stock tradable boosted investor demand at home, and economic growth that's averaged 10 percent for the last five years helped lift companies' earnings. Growth, Earnings Overseas investors, who require government approval to buy yuan-denominated securities, have also been pumping in funds, increasing their holdings of local-currency shares to 97.1 billion yuan at the end of 2006, from 34.7 billion yuan a year earlier, the Shanghai Securities News reported Jan. 25. Only 30 percent of companies listed on the Shanghai Stock Exchangeare good to invest in by Western standards,’’ and investors in the remaining 70 percent will probably lose money, Cheng Siwei, vice chairman of the National People’s Congress, said Jan. 30 at a conference in Dubai. Haitong Securities said yesterday ``a correction’’ is under way.

Among the 300 companies that are included in China’s benchmark stock index, 250 fell today. Beijing Gehua CATV Network Co., Jiangxi Hongdu Aviation Industry Co. and Guangxi Liugong Machinery Co. all plunged by the exchanges’ 10 percent daily limit.

Gehua CATV, an operator of cable TV network, dropped 3.21 yuan to 28.92, paring the stock’s gain to 16 percent this year. Hongdu Aviation, a manufacturer of aviation product, tumbled 2.38 yuan to 21.45. Liugong Machinery, a construction machinery manufacturer, lost 1.96 yuan to 17.70.

To contact the reporter on this story: Zhang Shidong in Shanghai at at szhang5@bloomberg.net
Last Updated: February 2, 2007 11:50 EST

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