Markets

Rate-rise rumors see stocks slide

By Irene Shen (China Daily)
Updated: 2010-12-09 09:27

SHANGHAI - Stocks on the Chinese mainland fell the most in a week on speculation the government will increase interest rates and introduce property taxes, boosting concern the tightening measures will slow corporate profit growth.

Industrial and Commercial Bank of China Ltd (ICBC) and China Construction Bank slid more than 1.2 percent on speculation the People's Bank of China will lift borrowing costs this weekend.

China Vanke Co and Gemdale Corp led declines for real estate developers after the China Securities Journal reported Shanghai will be among the first cities to undertake property tax trials.

The Shanghai Composite Index lost 0.95 percent, to 2848.55 on Wednesday, while the CSI 300 Index fell 0.89 percent to 3171.88.

China's central bank may raise rates around the release of November's inflation data on Saturday, the China Securities Journal reported on Tuesday.

Benchmark money-market rates rose the most in more than a week on speculation policymakers will boost rates for a second time since October to help inflation. Consumer prices gained 4.4 percent in October, the fastest pace in two years.

"This weekend is now regarded as a 'window' for China to raise rates," said Li Jun, a strategist at Central China Securities Co in Shanghai. "Some investors may play safe before the announcements."

ICBC slid 1.39 percent and China Construction Bank dropped 1.24 percent on Wednesday. Meanwhile, China Vanke lost 1.96 percent and Gemdale retreated 1.83 percent.

Related readings:  China's stocks close mixed Friday  Improving data boosts stocks for second day  Stocks rise on global recovery strength  China's stocks end higher tracking US market on improved data

The Shanghai gauge has lost 9.8 percent since reaching a seven-month high on Nov 8 on concern that monetary tightening will curb economic growth.

PetroChina Co dropped 1.87 percent after Deutsche Bank AG kept a "hold" rating on the company.

"As oil prices rise, so does the cost of gas imports," David Hurd and Monica Ma, Deutsche analysts wrote in a note. "We remain cautious on the China gas story."

Railway stocks rallied after the China Securities Journal reported the government may invest 3 trillion yuan to 4 trillion yuan ($451-$601 billion) in the industry as part of the 12th Five-Year Plan (2011-2015).

China CNR Corp and CSR Corp, the nation's biggest railcar makers, surged to the highest since their IPOs. China CNR jumped 5.97 percent on Wednesday, the highest since December 2009. CSR Corp gained 6.95 percent on Wednesday, the highest since August 2008.

Chinese companies that are dependent on economic growth may outperform the market next year as inflation will be "mild," valuations are "cheap" and the outlook for earnings is "solid," according to Morgan Stanley.

Investors should switch to so-called cyclical stocks, such as banks, developers, steelmakers and energy producers, analysts said.

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