Markets fall on banks' capital raising

08:40, July 20, 2011      

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Stocks on the Chinese mainland fell on Tuesday, driving down the benchmark index by the most in a week, on concern banks' fundraising will drain capital from existing shares and policy tightening measures may slow the economy.

SAIC Motor Corp and FAW Car Co slid 2 percent after Sinolink Securities Co said more local governments may introduce measures to limit car purchases to ease traffic congestion.

"Fundraising by banks will further drain liquidity from the market and lead investors to worry about the health of the banking industry," said Wei Wei, an analyst at West China Securities Co in Shanghai. "Policy tightening will be there for a while."

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, dropped 19.71 points to 2796.98 at its close. The CSI 300 Index fell 0.9 percent to 3095.13.

The Shanghai measure has slipped 0.4 percent this year after the central bank raised interest rates five times and the reserve-requirement ratio 12 times since the start of 2010 to stem inflation. Consumer prices rose 6.4 percent in June, the fastest pace in three years, as food costs increased.

China Construction Bank Corp lost 0.4 percent to 4.88 yuan ($0.75). Bank of China Ltd fell 0.3 percent to 3.10 yuan. Chinese banks are raising capital to meet higher adequacy requirements from the China Banking Regulatory Commission. The agency said in April it will raise the minimum ratio for "non-systemically important banks" to 10.5 percent from 8 percent.

Lenders' minimum core capital adequacy requirement was more than doubled to 8.5 percent from 4 percent. A 32-member measure of consumer discretionary stocks slid 1.7 percent on Tuesday, the most among the CSI 300's 10 industry groups.

SAIC retreated 2 percent to 18.03 yuan, trimming its gain to 23 percent this year.

FAW Car, which makes passenger cars in China with Volkswagen AG, lost 2 percent to 14.31 yuan.

Chongqing Changan Automobile Co, the Chinese partner of Ford Motor Co and Mazda Motor Corp, fell 1.7 percent to 5.18 yuan.

Auto stocks don't have "momentum" for further gains given the "sizeable" rebound they have made, Wu Wenzhao, an analyst at Sinolink Securities Co, wrote in a report on Tuesday. The policy uncertainty the auto industry is facing is increasing after the southwest city of Guiyang in Guizhou province introduced purchase restrictions, according to the report.

US stocks declined on Monday amid President Barack Obama's efforts to get lawmakers to agree to a deficit-cutting deal as the deadline for raising the debt ceiling nears. European shares also fell on concern the region's banks may have to raise as much as 80 billion euros ($113 billion) of additional capital.

Source:China Daily
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