China Indexes Decline on the Prospect of More Rate Hikes

Nigel Thomas
09 Feb, 2011
New York City

Stocks in China region declined on the first of trading after a week long holiday. Resource stocks in Hong Kong and Shanghai fell tracking lower copper and gold prices. Real estate developers fell more than 2% on the worries that future rate hikes may affect asset prices.

[R]5:30 PM Hong Kong – Stocks in China region declined on the first of trading after a week long holiday. Resource stocks in Hong Kong and Shanghai fell tracking lower copper and gold prices. Real estate developers fell more than 2% on the worries that future rate hikes may affect asset prices.[/R]

Stocks and market indexes faced selling pressure as inflation concern remain in focus. Drought conditions affecting wheat crop and central bank still lagging the prices increase in real economy have left investors on the sidelines.

Yuan closed nearly flat at 6.59 to a dollar and Hang Seng index declined 1.3% or 320.27 to close at 23,164. CSI 300 index fell 1.2% or 36.33 to close at 3,040.95.

Markets in Korea, Taiwan, Thailand, Singapore, India and Indonesia declined more than 1%.

In addition, foreign investors have been pulling money from emerging markets on the inflation worries and slow down in the economic growth. More than $7 billion has been withdrawn from these fast growing economies in the last 45 days according to the data collected by 123jump.com research team.

The latest rate hike from the People’s Bank of China was widely expected and more rate increases are expected in the year. However, the delicate balancing act between the economic growth and inflation has not been easy for the central bank.

People’s Bank has been slow in raising rates as money supply increased 50% in the last two years and real estate prices gained at least 30% in major cities.

The rate hikes are expected to affect stocks and real estate more than the broader economy as most of the liquidity is flowing into these assets. Auto sales are also like to be affected in the year.

Stock Movers

China Vanke declined as much as 2% to 7.59 yuan as investors fear the rate hikes in the last five month and the expected hikes in the year are likely to affect stock market and real estate prices more than the economy. Most of the newly created liquidity in China is chasing higher asset prices.

Poly Real Estate Group Co declined 2.3% to 12.45 yuan.

Jiangxi Copper Co. dropped 4% as base metal prices declined in Shanghai trading. Copper price has surged in the last thirteen months and soared as much as 59%.

On the London Metal Exchange and Comex in New York, copper prices inched 0.1% lower after dropping as much as 1% in the intra-day session to near $10,050 a ton.