Hong Kong, Shanghai Indexes Drop Ahead of Liquidity Measures

Chandrasekhar Atreya
30 Nov, 2010
New York City

Stocks in Shanghai and Hong Kong faced heavy selling pressure ahead of widely anticipated tighter liquidity measures next week. Bank lending is ahead of national target and policy makers are worried of rising inflation. Banks and property developers led the decliners.

[R]4:00 PM Hong Kong – Stocks in Shanghai and Hong Kong faced heavy selling pressure ahead of widely anticipated tighter liquidity measures next week. Bank lending is ahead of national target and policy makers are worried of rising inflation. Banks and property developers led the decliners.[/R]

Shanghai stocks dropped today after lingering weakness in European markets dampened investor sentiments.

Hong Kong stocks echoed mainland sentiments and closed lower despite better than expected Thanksgiving holiday sales in the U.S. Talks of additional tightening also unnerved markets.

Property developers and banks are bracing for lower liquidity and declining sentiment in construction industry. Tighter liquidity rules are widely expected at the meeting of regulators and policymakers next week.

The Shanghai Composite Index fell 1.61% or 46.18 to close at 2,820.18 and fell 5.33% for the month. The CSI 300 Index dropped 1.66% or 53.06 to close at 3,136.99 and for the month plunged 7.19%.

The Hang Seng Index in Hong Kong also dropped 0.68% or 158.23 to close at 23,007.99 and for the month the index dropped 0.38%.

Banks in China have extended more than 580 billion yuan of credit in November, which will likely push the whole-year credit disbursed beyond the national target of 7.5 trillion yuan, according to private economic think tank.

The banks in China extended more than the estimated 587.7 billion yuan of new loans in October. This was in fact more than the September allocation of 595.5 billion yuan.

The total loans extended till October reached 6.9 trillion yuan and below the target for the year, the banks may have to limit their loan issues to within 306 billion in the last two months of the year, economists suggest.

CNOOC Ltd’s purchase of stake in Argentina-based Pan American Energy will only boost the company’s output and may not have a significant impact on its earnings, because of the local tax regime, according to analysts.

Argentina’s tax policies, which cap realized oil prices at below $50 per barrel, have diminished the attractiveness of operating in that country and analysts expect earnings per share accretion to be only 1% for the company following the deal.

China Mobile, the world’s largest carrier, said Monday it aims to double its 3G network usage to 20% by the end of 2011, through a nationwide network upgrade and with the introduction of smart phones.

The coverage will be better than that of 2G in the nine major cities including Shanghai in 2011 because the carrier will upgrade its 3G network based on locally developed TD-SCDMA technology.

China Huaneng Group, the country’s largest electricity producer, will buy 50% stake in U.S.-based power utility InterGen for $1.23 billion, increasing its power generating assets from Europe to the U.S. India based GMR Group is selling the stake to focus on India.

This will also be the largest acquisition for Huaneng since March 2008, when it bought Singapore’s Tuas Power Ltd for $3 billion. GMR Group bought the stake in October of 2008. The balance 50% stake is with Ontario Teachers’ Pension Plan.

China plans to modify its pricing regulations and impose harsher punishments on speculators who help drive up consumer prices, according to a briefing of a meeting presided over by Premier Wen Jiabao on Monday.

The decision to review the Rules of Administrative Sanctions on Price Offense will focus on illegal operations like swindling, hoarding and price fixing that can push up the prices of commodities. The review is aimed at introduction of harsher penalties, the statement said.

SSE 380 Index, the new index tracking 380 high-growth medium-sized blue chip companies listed on the Shanghai Stock Exchange, was up 0.35% on its debut on Monday.

The gauge measures the overall performance of leading emerging companies in new sectors such as energy saving, bio-engineering and wind energy companies. The list bars telecom firms, banks and insurers from inclusion.

Philips Automotive Lighting inaugurated on Monday its second China factory in Malu Town of suburban Jiading District in Shanghai.

The new unit will specialize in manufacturing of high-performance halogen bulbs with imported components and is oriented towards the Asia Pacific and China markets.

Stock Movers

Banks declined on the worries that rising inflation may spur more reserves for banks and higher interest rates.

Industrial & Commercial Bank of China Ltd declined 2.1% to 4.22 yuan and China Construction Bank fell 1.6% to 4.63 yuan.

Property developers declined on the worries that prices may fall and acquiring loans for homes may become difficult.

China Vanke Co declined 0.5% to 8.13 yuan and Poly Real Estate Group Co decreased 1.3% to 12.13 yuan.

Consumer products maker fell after National Development and Reform Commission lowered prices on 17 widely used medicines.

Beverage and food makers closed lower. Wuliangye Yibin fell 3.8% to 39.17 yuan and Kweichow Moutai declined 5.3% to 204.85 yuan.