Stocks slide amid policy concerns

08:41, November 17, 2010      

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China's stocks fell, driving the benchmark index to the lowest in a month, on speculation the government will intensify measures to curb accelerating inflation including higher interest rates and price controls.

PetroChina Co and Jiangxi Copper Co plunged more than 6 percent on concern further tightening will curb oil and metals demand. China Vanke Co slid to the lowest since September, pacing declines by real-estate developers, after the government ordered first-time foreign homebuyers to show proof they don't own other properties. China Construction Bank Corp and Agricultural Bank of China Ltd dropped more than 2 percent on the prospect higher borrowing costs will cut loan growth.

"Speculation that the central bank will tighten monetary policy continues to dog the market," said Wang Cheng, a strategist at Guotai Junan Securities Co in Shanghai. "The market will be under pressure for the coming three to 12 months from the threat of measures to cool inflation."

The Shanghai Composite Index tumbled 3.98 percent, to 2894.54 at the close on Tuesday, the lowest since Oct 14. The CSI 300 Index slid 4.38 percent to 3169.54 on Tuesday.

China will introduce measures to control rising food prices, including limits on how much products may be sold for and subsidies, the China Securities Journal reported, citing an unidentified person. Corn prices in China jumped to a record on Tuesday and rice also reached an all-time high.

The Ministry of Commerce said it will work with other government agencies to curb inflation. The supply of most goods is sufficient although a few products, including diesel, are in short supply, the ministry said in a statement. The government is selling pork and sugar from reserves to ensure supply, the ministry said.

Gauges of energy and material companies in the CSI 300 Index dropped more than 5 percent on Tuesday. The energy and material stock gauges rallied more than 26 percent last month on speculation the US quantitative easing program would spur inflation and fuel more inflows into emerging markets. China is also the world's leading consumer of many commodities.

"The energy and materials sectors are particularly susceptible to a tightening in monetary policy," said Li Jun, a Shanghai-based strategist at Central China Securities Co. "Liquidity will be tighter in the short term."

A gauge of banks and developers in the CSI 300 Index dropped 4 percent on Tuesday to the lowest in more than a month.

Vanke, the nation's largest developer by market value, fell 4.3 percent on Tuesday. Poly Real Estate Group Co slid 5.5 percent on Tuesday.

Foreigners will have to provide home ownership statements before their purchases, along with proof of at least a year's employment in China, the State Administration of Foreign Exchange and the Ministry of Housing and Urban-Rural Development said. Overseas companies are only allowed to buy offices in cities where they are registered, it said.

Source:China Daily


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