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Market ends win streak on bank liquidity woes

(China Daily/Agencies)
Updated: 2009-11-25 08:05

Chinese stocks fell, driving the benchmark index to its biggest loss in almost three months, on concern the nation's banks will sell more shares to replenish capital depleted by record loan growth. The Shanghai Composite Index dropped 3.5 percent to 3223.53, the most since Aug 31 and sliding from a three-month high.

China's five largest banks submitted preliminary plans for raising capital to the industry regulator, according to four people with knowledge of the matter. The nation's 11 largest publicly traded banks may need to raise about 300 billion yuan by selling shares and bonds to ensure they have adequate capital for continued loan growth, BNP Paribas said last week.

"Should so many big banks propose to raise capital, that will be a big blow to investors' confidence as it will hurt the market's liquidity," said Li Jun, a strategist at Central China Securities Holdings Co.

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Bank of China dropped 2.3 percent to 4.25 yuan. The nation's third largest by market value said it is studying "various options" to replenish capital and has no detailed plans to disclose yet. Industrial & Commercial Bank of China Ltd retreated 2.7 percent to 5.32 yuan.

The Shenzhen Composite Index fell 4.3 percent, snapping a record 17-day winning streak. The CSI 300 Index lost 3.2 percent to 3548.08.

Foreign-currency stocks in China also declined. The Shanghai B-Share Index fell 7.3 percent to 242.03, the steepest decline since Nov 18, 2008. The measure of 53 dollar-denominated stocks traded in the city had gained 26 percent this month through yesterday.

"Share prices have gained too quickly and earnings have yet to catch up with the rally," said Xu Lirong, a Shanghai-based fund manager at Franklin Templeton Sealand Fund Management Co, which oversees about $2.6 billion. "The slump won't alter the market's upward trajectory however; the economic recovery is irreversible."