China Prepares for New Currency and Property Lending Curbs

Marcus Jacob
09 Nov, 2010
New York City

Stocks in China region declined ahead of new foreign funds restrictions and property lending curbs. The yuan strengthened against major currencies. Banks and property developers fell. Investors are increasingly factoring higher inflation in China.

[R]5:00 PM Hong Kong – Stocks in China region declined ahead of new foreign funds restrictions and property lending curbs. The yuan strengthened against major currencies. Banks and property developers fell.[/R]

Stocks in Shanghai and Hong Kong trading declined ahead of G20 meeting this week. China is preparing to add more foreign funds flows curbs as it prepares to face new flood of international funds.

China has joined several other emerging nations and voiced its concerns about the new money supply in the U.S. financial system. Increasingly the U.S. Federal Reserve’s decision to add $600 billion to the money supply is seen as inflationary by the emerging nations.

China is expected to overshoot its inflation target this year as property prices continue to surge and latest curbs have only shifted the flows from larger cities to smaller towns. Hong Kong is also a favorite destination of the rich and property prices have hovered in the port city to the record highs last seen in 1997.

The Shanghai Composite Index declined 24.51 or 0.8% to 3,134.99 and the CSI 300 Index declined 0.7% to 3,523.95. For the quarter the SCI index is up 18%. Hang Seng index declined 253.77 or 1% to 24,710.60.

China State Administration of Foreign Exchange announced that it will step up the auditing of foreign flows and will demand banks to hold more foreign exchange to prevent the inflation from perking up.

Stock Movers

Banks and property developers led the decliners in trading on the worries that tighter lending rules may be announced as early as next week.

Agriculture Bank of China Ltd declined 2.1% and Bank of Communications fell 1.7% to 6.25 yuan.

China Vanke declined 4% to 9.50 yuan and Poly Real Estate dropped 4.1% to 14.47 yuan.

Hainan linked stocks rose on the speculation that the province may be ready to start a duty-free zone. The news was reported by the Shanghai Securities News.

The news lifted Hainan Airlines Co. to the daily limit of 10% to 10.22 yuan and Hainan Zhenghe Industrial Group Co soared to the daily limit as well.

Energy complex stocks declined after crude oil futures fell in international markets. PetroChina declined 2.6% to 11.80 yuan and China Shenhua Energy Co decreased 1% to 29.07 yuan.