Most China Stocks Drop on Inflation, Monetary Policy Outlook

Most China stocks fell on speculation inflation jumped to a three-year high last month, making it difficult for the government to stop its policy tightening measures even as the economy slows.

Most China Stocks Drop on Inflation, Monetary Policy Outlook

Anhui Conch Cement Co. and Huaxin Cement Co. declined more than 2 percent amid concern slowing economic growth is curbing demand for construction materials. China Southern Airlines Co. retreated for the first time in a week after the South China Morning Post reported airlines have reduced fares on the Beijing-Shanghai route to compete with high-speed railways.

“The market expects the June inflation number to be high and the relaxation of policy tightening isn’t too likely,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. “These factors will limit room for the rebound.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid 4.5 points, or 0.2 percent, to 2,789.69 at 2:13 p.m. local time. The gauge has gained 1.1 percent this week. The CSI 300 Index added 0.2 point to 3,101.89.

The central bank raised interest rates this week for a fifth time since the start of last year to cool inflation that reached a 34-month high in May. The Shanghai gauge has erased much of this year’s loss of as much as 6.7 percent on speculation inflation may be peaking and fiscal policies such as spending in affordable housing will support the economy. Premier Wen Jiabao said on June 24 efforts to stem inflation have worked.

Anhui Conch Cement, China’s biggest cement maker, slid 2.4 percent to 27.06 yuan. Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., fell 2.4 percent to 26.33 yuan.

Inflation Outlook

China accelerated the release of sensitive economic data, about three months after announcing a crackdown on leaks. June data for consumer and producer prices will be released tomorrow, six days ahead of the original schedule, Liu Guoning, a press officer for the bureau, said in a phone interview yesterday.

Inflation accelerated to 6.2 percent in June, according to the median forecast in a Bloomberg News survey of economists. Consumer prices rose 5.5 percent in May, the most since July 2008, mainly driven by food costs.

Chinese central bank governor Zhou Xiaochuan said today the nation can’t adopt inflation as its only monetary policy target.

The People’s Bank of China has various policy targets including inflation, Zhou said at a forum in Beijing. The central bank also has to maintain economic growth and consider employment, Zhou said.

Airlines Drop

The government won’t reverse its prudent monetary policy in the short term, the Financial News newspaper reported today, citing officials and researchers. Sheng Songcheng, head of the central bank’s statistics department, and Yan Qingmin, assistant chairman of the China Banking Regulatory Commission, were among officials and researchers cited.

China and Hong Kong stocks were cut to “underweight” from “neutral” at JPMorgan Chase & Co., which said speculation that Chinese policymakers are ending their tightening efforts is “premature.”

China is likely to increase banks’ reserve requirements by 50 basis points in the second half, analysts led by Adrian Mowat said in a report today. The property markets in China, Hong Kong and Singapore have peaked, they said.

Air China Ltd., the nation’s largest international carrier, fell 0.7 percent to 10.14 yuan. China Southern Airlines, the biggest carrier by fleet size, slid 2.4 percent to 8.26 yuan.

Chinese airlines have reduced fares by an average 15 percent on the Beijing-Shanghai route to compete with the new high-speed trains between the two cities, the South China Morning Post reported, citing Luo Zhuping, a director at China Eastern Airlines Corp.

Consumer Staples

A gauge of consumer staples producers in the CSI 300 has risen 3.3 percent this week, the second most among industry groups. Wuliangye Yibin Co., the second-biggest producer of baijiu liquor, jumped 4.1 percent for the week, as consumer companies benefited from a cut in income taxes and speculation that their earnings will weather an economic slowdown.

The nation’s equities rallied early in the week as a report showing non-manufacturing industries expanded at the slower pace boosted prospects the government may ease monetary tightening policies.

Bloomberg

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