BL: China Stocks Fall in U.S. as Beijing Raises Bank Reserve Ratio
By Ye Xie
Feb. 12 (Bloomberg) -- China stocks trading in the U.S. fell the most in more than a week after the nation ordered banks to set aside more deposits as reserves for the second time in a month to cool the world’s fastest-growing economy.
The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, lost 2.2 percent to 358.67 as of 10:39 a.m. New York time. PetroChina Co., the country’s biggest oil producer and the world’s largest company, tumbled. E-House China Holdings Ltd., the Shanghai-based provider of real-estate services, and Industrial & Commercial Bank of China, the world’s largest bank by market value, fell more than 2 percent.
“China will need to take more aggressive tightening measures to stabilize excess liquidity and to get a leg up on inflationary pressures,” said Andy Mantel, founder and managing director of Pacific Sun Investment Management Ltd. “Chinese equities will face some short-term weakness, particularly Chinese banks and property stocks.”
Mantel said he has been betting the banking and property stocks will decline since “early December.”
The reserve requirement will increase 50 basis points, or 0.5 percentage point, effective Feb. 25, the People’s Bank of China said on its Web site today. The current level is 16 percent for big banks and 14 percent for smaller ones.
Global Retreat
Emerging-market stocks, crude oil and copper declined after Beijing’s announcement on concern that tighter lending in China will damp the global economic recovery. The MSCI Emerging Markets Index of 22 nations’ stocks declined 0.4 percent. The S&P GSCI Index of 24 raw materials fell 2 percent, the most since Feb. 5. Stocks in Brazil, which counts China as its biggest trading partner, dropped for the first time this week, with the Bovespa index losing 1 percent.
China’s policy makers are aiming to avert asset bubbles and restrain inflation after banks extended 19 percent of this year’s 7.5 trillion yuan ($1.1 trillion) lending target in January and property prices climbed the most in 21 months.
PetroChina lost 2.9 percent to $108.83 as crude declined for the first time this week. E-House China Holdings slid 3.1 percent to $17.52. ICBC declined 2.4 percent to $35.55.
The USX China Index, which tracks 159 companies that get most of their revenue from China, lost 1.9 percent. Aluminum Corp. of China Ltd., the nation’s biggest producer of the metal, was the biggest drag on the index, retreating 5.1 percent to 23.35.
‘Controlling Boom’
“This is all about controlling the boom, so that we don’t have a bust in the second half,” said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai.
The central bank moved after Chinese markets closed and on the eve of a weeklong Lunar New Year holiday when the nation moves into the Year of the Tiger from the Year of the Ox. The Shanghai Composite Index rose 1.1 percent before the announcement. The stock index has lost 7.9 percent this year.
Record lending and a 4 trillion yuan stimulus package have helped the nation to lead the recovery from the first global recession since World War II.
“With China’s increasing economic significance in the world economy, major policy moves will always touch a nerve with global markets,” said Qu Hongbin, chief China economist at HSBC Holdings Plc in Hong Kong. “Still, timely tightening in China will help sustain growth and avoid overheating, benefiting the world in the long term.”
‘Crisis Mode’
The central bank said yesterday that it wanted to gradually normalize monetary conditions from a “crisis mode” after gross domestic product grew 10.7 percent in the fourth quarter, the fastest pace in two years. It also said that not all countries will exit stimulus policies at the same time.
Policy makers are yet to drop the yuan’s effective peg to the U.S. dollar, which was adopted in July 2008 to aid the nation’s exporters, stoking friction with the U.S. and Europe.
Credit Suisse Group AG estimated that today’s move will remove about 300 billion yuan from a financial system also facing inflows of cash from investors betting on the nation’s recovery and likely gains by the yuan. The nation’s foreign- exchange reserves swelled to a record $2.4 trillion in December, partly on inflows of “hot money,” or speculative capital.
The central bank on Jan. 12 increased banks’ reserve requirements for the first time since June 2008. The latest move will soak up liquidity from maturing central-bank bills and also money injected into the financial system for the coming holiday, China International Capital Corp. said.
At Morgan Stanley, Hong Kong-based economist Wang Qing said that today’s increase would counter foreign-exchange inflows which “must have been persistently strong since January” and also withdraw money added for the holiday.
Reserve-requirement increases will continue through 2010, Wang said. “The market should get used to it.”
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.net
Last Updated: February 12, 2010 10:43 EST
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