China Indexes Plunge 5% on Inflation Worries; HK Expands at 6.8%

Nigel Thomas
12 Nov, 2010
New York City

Stocks in China plunged on the worries that accelerating inflation will spark another round of bank tightening. The benchmark indexes in Shanghai plunged more than 5%. Hong Kong reported third quarter economic growth at 6.8%.

[R]5:00 PM Hong Kong – Stocks in China plunged on the worries that accelerating inflation will spark another round of bank tightening. The benchmark indexes in Shanghai plunged more than 5%. Hong Kong reported third quarter economic growth at 6.8%.[/R]

Investors sold stocks aggressively in China region after latest report in inflation sparked new worries of bank tightening. Also, lack of clear direction from G20 meeting also unnerved the market.

Consumer price index or the inflation increased 4.4% in October after rising 3.6% in September and ahead of 3% target set by the government.

Stocks in China region declined as developers, resource linked companies and banks closed lower.

Shanghai Composite Index plunged 5.2% or 162.31 to 2,985.40 and the CSI 300 Index dropped 6.2% 3,291.83. The SCI lost 4.6% in the week and markets in Asia closed lower as well. Hang Seng index declined 1.9% to 24,222.58.

Copper futures declined from the record price yesterday and dropped by a daily limit on the worries that the recent price increase was overdone.

The yuan weakened after the release of inflation data. People’s Bank of China set the reference rate at 6.6239 to a dollar but the yuan closed today at 6.6430, a fall of 0.3%.

China also said its foreign exchange reserves rose to $2.65 trillion in September, the largest held by any nation and is expected to climb further with the rise in trade surplus in October.

Hong Kong economy expanded at annual rate of 6.8% in the third quarter after rising at 6.1% in the second quarter. The economy grew 0.7% from the second quarter.

Retail sales increased 17% in September from a year ago and exports from the island rose 24% in the month.

Stock Movers

Banks declined after inflation accelerated in October. Bank of China declined 3.4% to 3.36 yuan and China Citic Bank Corp declined 5.6% to 5.51 yuan. Industrial & Commercial Bank of China Ltd dropped 2% to 4.71 yuan.

Banks are expected to face another round of tightening after the inflation data. Over the weekend China may increase capital ratios by another 50 basis points after increasing them by the same on November 10.

Resource stocks declined after copper and precious metals fell. Jiangxi Copper dropped 9% to 41.33 yuan and Aluminum Company of China plunged 8.1% to 11.55 yuan.

Home developers and construction companies declined sharply. China Vanke fell 7.1% to 8.54 yuan, Gemdale Corp fell 7% to 6.15 yuan and Poly Real Estate Group dropped 7.3% to 12.95 yuan.