Markets down for fourth day amid tightening efforts

By Zhang Shidong and Irene Shen (China Daily)
Updated: 2011-04-28 09:45
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SHANGHAI - Stocks on the Chinese mainland fell on Wednesday for a fourth day, extending the benchmark index's longest losing streak this year, on concern that the government's measures to reduce inflation and cool the property market are hurting corporate earnings growth.

Markets down for fourth day amid tightening efforts

China Vanke Co Ltd and Poly Real Estate Group Co Ltd slid more than 1 percent after the China Securities Journal said the government may raise downpayment requirements for first-home purchases. Sinovel Wind Group Co Ltd dropped to a record low after profit growth slowed in the first quarter.

A gauge of smaller companies fell for a fourth day on speculation that the valuations are overpriced.

"The major concern for investors is that tightening will be intensified in the future," said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. "The property market is likely to bear the brunt of further tightening as prices are still high. If the property market collapses, economic growth will be jeopardized."

The Shanghai Composite Index, which tracks the bigger stock exchanges in China, dropped 0.46 percent to 2925.41 at the 3 pm close. The CSI 300 Index slid 0.66 percent to 3209.50.

Poly Real Estate lost 1.99 percent to 13.28 yuan ($2.04). China Vanke slid 1.75 percent to 8.40 yuan.

The government may require downpayments of 50 percent for first-home purchases if property prices continue to rise, the China Securities Journal reported on Wednesday, citing an unidentified loan official at a domestic bank. The land ministry will also issue policies to control the price of land, it said.

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The banking regulator may also tighten the regulation of loans that trust companies extend to developers, according to the report.

Chinese small-company stocks will extend the steepest two-day drop in three months as more companies miss profit estimates amid government tightening efforts, said GF Fund Management Co.

The CSI Smallcap 500 slumped 1.15 percent to 4913.50, capping a three-day, 4.9 percent retreat - the most since Jan 24.

The ChiNext index of start-up companies dropped to the lowest since October. Earnings per share at the 320 companies that have released first-quarter earnings in the 500-member small-cap index trailed analysts' estimates by 14 percent, according to data compiled by Bloomberg.

"Earnings expectations for small caps were too high and many of them failed to meet expectations," said Chen Shide, a Guangzhou-based manager of small-cap stocks at GF Fund, which oversees about $15.9 billion.

"Small caps definitely haven't reached a bottom yet. Investors are now beginning to pay for ramping up share prices over the past two years."

Companies traded on the small-cap gauge are valued at 28 times estimated earnings, more than twice the CSI 300's multiple of 14.5, according to data compiled by Bloomberg.

Bloomberg News