China shares fall from two-week highs, property sinks Hong Kong

Mon Jul 8, 2013 8:58am IST

Stocks

   

* HSI -1.9 pct, H-shares -2.0 pct, CSI300 -1.1 pct

* Growth plays hurt, China pledges action on industrial overcapacity

* Beijing to roll out interest rate reform by year-end - state media

* Zijin Mining H-shares plunge 10 pct after profit warning

* HK property hit by bad weekend sales, rising Treasury yields

By Clement Tan

HONG KONG, July 8 (Reuters) - China shares tumbled from a two-week high on Monday, after Beijing pledged to cut off credit to industries plagued by overcapacity to force consolidation, triggering broad losses across the board.

The Chinese banking sector was also hurt by an official China Securities Journal report that the People's Bank of China is likely to unveil detailed measures to liberalize interest rates this year.

Hong Kong property counters were hit by bad weekend sales and rising Treasury yields after positive U.S. jobs data on Friday spawned expectations the Federal Reserve could soon begin paring stimulus.

At 0320 GMT, the Shanghai Composite Index was off 1.3 percent and the CSI300 of the leading Shanghai and Shenzhen A-share listings was off 1.1 percent. Both had ended on Friday at their highest since June 21.

The Hang Seng Index slid 1.9 percent, while the China Enterprises Index of the top Chinese listings in Hong Kong fell 2.0 percent. Losses almost completely reversed the rebound by both indexes late last week.

"It's double whammy in Hong Kong today, with the China credit announcement and the U.S. jobs data," said Jackson Wong, vice-president for equity sales at Tanrich Securities.

"The money in the market is very short-term right now. Most investors have given up hope for any stimulus from Beijing, but now it seems they could be rolling out stricter ground rules to aid the restructuring of the economy," Wong added.

In a statement from the State Council on Friday, Beijing laid out plans to ensure banks support the kind of economic rebalancing China's new leadership wants as it focuses on high-end manufacturing and seeks to end the dependence on extravagant investment funded by cheap debt.

China's Finance Ministry also told central government agencies to cut expenditures by 5 percent this year, a move the official Xinhua news agency said was part of an austerity campaign launched by the country's new leaders.

Shares of companies that have bigger balance sheet issues suffered higher percentage losses. China National Building Material, among the larger cement producers, sank 4.5 percent to test 21-month lows.

Hong Kong property developers dived on anticipation of higher interest rates, which could hurt demand, after U.S. job growth was stronger than expected in June and the payroll gains for the prior two months were revised higher.

New World Development dived 3.9 percent, while Link real estate investment trust (REIT) sank 1.8 percent to its lowest in almost two weeks.

According to BNP Paribas, secondary property market sales stayed weak and only 18 units were sold in the primary market over the July 6-7 weekend, 75 percent fewer than the 72 units sold the previous weekend.

Hong Kong property agents and investors marched on Sunday, protesting against curbs imposed by the government that have curbed transaction volumes, but not prices.

CHINA POLICY CONCERNS

Chinese banks were among the leading index drags on fears of lower net interest margins following greater interest rate liberalisation. Industrial and Commercial Bank of China (ICBC) dived 3.1 percent in Hong Kong and 1 percent in Shanghai.

The same China Securities Journal report also suggested there will be no easing of policy after it referred to market liquidity as "sufficient" and deposit growth as being "positive," while referring to June's interbank liquidity squeeze as a stress test ahead of reforms.

Zijin Mining plunged 9.5 percent in Hong Kong after China's largest gold miner warned that first half profit could decline 45 to 55 percent from a year earlier. Its Shanghai listing was down 1.9 percent.

The Economic Information Daily reported on Monday that more than one-fifth of the nearly 1,000 mainland-listed firms that have issued earnings forecasts expect a profit decline for the first half. A total of 139 warned of possible losses, with those in the steel, coal, non-ferrous metal and high-end catering businesses figuring prominently.

Investors will also be watching monthly economic data from China this week. Beijing is due to post June inflation on Tuesday and trade on Wednesday, with loan growth money supply data expected any time between July 8 and 15.

Second quarter GDP growth is due on July 15, as are monthly urban investment, industrial output and retail sales figures.

The median forecast of 21 economists polled by Reuters show China's economy in April-June likely grew 7.5 percent from a year ago, slowing from the previous three months as weak demand dented factory output and investment growth.

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