Markets

Benchmark index down Thursday on lending curb fears

By Zhang Shidong (China Daily)
Updated: 2010-09-17 08:57

SHANGHAI - Equities declined, sending the benchmark index to its biggest drop in three weeks, as investors speculated the government will curb bank lending.

Financial companies led the decline, with Agricultural Bank of China Ltd sinking below its offer price for the first time since its July debut. A person with knowledge of the matter said the regulator may require the biggest banks to boost capital adequacy ratios to as high as 15 percent by 2012.

Jiangxi Copper Co and China Shenhua Energy Co retreated after prices of metals and oil fell. Guangzhou Pharmaceutical Co paced losses by drugmakers on prospects recent gains were overdone.

"Should the 15 percent target be implemented, it'll hurt liquidity because banks will reduce lending and sell new shares to boost capital," said Wang Zheng, chief investment officer at Jingxi Investment Management Co in Shanghai. "The decline in smaller companies such as pharmaceutical stocks is no surprise; current prices have already baked in growth potential for the next couple of years."

The Shanghai Composite Index slid 50.04, or 1.9 percent, to close at 2,602.47 on Thursday. That's the biggest loss since Aug 25. The gauge fell 1.3 percent on Wednesday amid concern government curbs on the property market and energy consumption will slow growth in the economy and earnings. The CSI 300 Index declined 1.9 percent to 2,857.79 on Thursday.

The Shanghai index has rebounded 10 percent from this year's low on July 5 on signs the nation's economic slowdown is stabilizing. The measure plunged 27 percent in the first half after last year's 80 percent surge as the government imposed tightening measures ranging from restrictions on multi house purchases to a 7.5 trillion yuan ($1.1 trillion) annual limit on new lending by banks. An index tracking financial companies dropped 1.7 percent on Thursday and was the biggest contributor to losses on the CSI 300 among the 10 industry groups.

Agricultural Bank of China lost 1.9 percent to 2.63 yuan, below its offer price of 2.68 yuan. Industrial & Commercial Bank of China Ltd declined 1.5 percent to 3.97 yuan. China Construction Bank Corp declined 2 percent to 4.52 yuan, the lowest close since May 2009.

A draft proposal by the banking regulator calls for banks to add a capital adequacy ratio buffer of as much as 4 percent to shield against economic swings, a person with knowledge of the matter said on Wednesday.

The new rules would boost the overall minimum capital adequacy ratio for the largest lenders to as high as 15 percent from 11.5 percent now, the person said.

"We believe the countercyclical capital buffer, if it is implemented, will have a profound impact on bank lending growth ahead," Beijing-based Goldman Sachs Group Inc analysts Ning Ma and Richard Xu wrote in a note on Thursday.

China should lower economic growth expectations "moderately," Xia Bin, an adviser to the People's Bank of China, said on Wednesday.