Aspects Affected By China's Stocks In 2011

Aspects Affected By China's Stocks In 2011

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Chinas stocks fell, driving the benchmark index lower for the sixth time in seven days, on concern about a cash crunch after interbank lending rates jumped and profit growth for industrial companies slowed.

China Construction Bank Corp. and China Minsheng Banking Corp. paced declines for lenders after one-month interbank borrowing costs surged the most since June. Anhui Conch Cement Co. and Sany Heavy Industry Co. dropped more than 2 percent, leading losses for industrial companies after a report showed earnings growth for the first 11 months of the year decelerated.

Tight liquidity and slowing economic growth are key concerns for investors and that hasnt changed, said Wei Wei, an analyst at West China Securities Co. in Shanghai. Stocks have room for further declines because we dont see a reversal of fundamentals.

The Shanghai Composite Index slid 18.97 points, or 0.9 percent, to 2,171.14 as of 10:31 a.m. local time, heading for the lowest level since March 16, 2009. The CSI 300 Index fell 0.9 percent to 2,313.82. A measure of small and medium-size companies slid 1.4 percent in Shenzhen. Hong Kongs market is shut today, while the U.S. was closed yesterday for the Christmas holiday.

The Shanghai Composite has fallen 7 percent in December as concern about an economic slowdown overshadowed the first cut in reserve requirement ratios in three years on Nov. 30. The measure trades at a record low of 10.4 times estimated earnings, according to data compiled by Bloomberg dating back to 2006. For the year, the measure is down 23 percent after the central bank raised interest rates three times to cool inflation and exports to Europe slowed because of the regions debt crisis.

Shibor Rate

Construction Bank, the countrys second-largest bank, fell 1.1 percent to 4.49 yuan. Minsheng Banking, the first privately owned bank, lost 0.9 percent to 5.84 yuan. Huaxia Bank Co., partly owned by Deutsche Bank AG, slid 0.7 percent to 11.10 yuan.

The Shanghai interbank offered rate, a gauge of the cash banks have on hand to lend to each other, has surged 101 basis points this month to 5.81 percent. It touched a two-month high of 5.89 percent on Dec. 22.

The jump in one-month interbank borrowing costs is adding to speculation Chinas central bank will cut reserve requirements to support economic growth.

Its possible the PBOC will cut the reserve ratio again before the Chinese New Year, a week-long holiday that starts Jan. 23, said Lily Wei, a fixed-income manager in Beijing at Harvest Fund Management Ltd., who manages about 11 billion yuan ($1.7 billion). Demand for loans usually shoots up at the beginning of the year. Given GDP and other indicators signal slowing, if the PBOC really wants to boost growth, itll lower the reserve ratio.

Slowing Industrial Profit

Anhui Conch, Chinas biggest cement maker, dropped 2.8 percent to 15.05 yuan. Sany Heavy, the largest machinery maker, slipped 2.1 percent to 11.92 yuan. China First Heavy Industries Co., a maker of equipment used in the mining and energy industries, fell 2.5 percent to 3.10 yuan.

Net income for Chinese industrial companies increased 24.4 percent in the first 11 months of 2011 from a year earlier to 4.66 trillion yuan ($737 billion), the National Bureau of Statistics said on its website today. The pace compared with 25.3 percent gain in the first 10 months and a 27 percent rise in the first three quarters.

China will set a growth target of about 11 percent for industrial output in 2012, the same goal as was set for this year, the Ministry of Industry and Information Technology said on its website yesterday. Industrial production will probably grow 13.9 percent this year, China National Radio reported separately yesterday, citing comments by Minister Miao Wei at a conference.

Of course, China's stocks had also made some effects on Mining Machinery Industry. In new year, China government will take effective measures to control these situations.


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