Money

Stocks declines on tighter credit jitters - May 26

By Zhang Shidong (China Daily)
Updated: 2011-05-27 10:53

SHANGHAI - China's stocks slid for a sixth day, driving the benchmark index to the longest stretch of losses in 11 months, on concern that tightening measures are slowing the economy and making it harder for small companies to borrow money.

Huaxin Cement Co, an affiliate of Holcim Ltd, dropped 2.9 percent after Shanghai Securities News reported China's industrial output might slow. A gauge of small-capitalization stocks fell to the lowest close in four months as Citigroup Inc said smaller companies are being squeezed by tighter credit. Kangmei Pharmaceutical Co led declines for drug makers on speculation the government will further lower drug prices.

"Sentiment is weak and we haven't seen anything positive that can support stocks," said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co. "Slowing growth, high inflation and tight lending will continue to weigh on the market in the near future."

Related readings:  Chinese shares close lower on Thursday  ChiNext Index closes down -- May 26  China stock index futures close down -- May 26

The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, fell 5.23 points to 2736.53 at the 3 pm close, erasing a gain in the last half hour of trading. The six-day decline is the longest since July 1. The CSI 300 Index lost 0.4 percent to 2978.38, while the CSI Smallcap 500 Index retreated 1 percent.

The Shanghai gauge has slumped 2.5 percent this year as the central bank raised the reserve-requirement ratio for banks 11 times and boosted interest rates four times since the start of 2010 to cool inflation, which exceeded the government target each month this year.

China's preliminary manufacturing index fell to its lowest level in 10 months, according to a report from HSBC Holdings PLC and Markit Economics this week.

China's industrial output growth is expected to slow in coming months as companies continue to destock and power shortages restrain production, Xu Ce, a researcher with the State Information Center, wrote in a commentary published in Shanghai Securities News.

Government efforts to cut capacity in some industries will also restrain output growth, Xu wrote.

China's small and medium-sized companies are being squeezed by credit rationing and rising costs, Minggao Shen, an analyst at Citigroup, said in a report after meeting clients.

The seven-day repurchase rate, which measures funding availability between banks, has averaged 3.48 percent so far this month, compared with 2.83 percent in April and 2.39 percent in March.

Kangmei fell 8.5 percent to 11.90 yuan ($1.83), the biggest decline in almost 21 months. Nanjing Pharmaceutical Co slid 6.9 percent to 12.44 yuan. Northeast Pharmaceutical Group Co lost 6.3 percent to 16.37 yuan.

"Institutions are selling drug maker shares because there's still a lot of uncertainty about the next round of drug price cuts by the government," said Li Ying, analyst at Capital Securities Corp.

Chinese stocks are "getting close to the market bottom" after recent declines and may gain as much as 20 percent this year, according to Steven Sun, Hong Kong-based head of China equity strategy at HSBC Holdings PLC.

The nation's equities may rally in the second half of 2011, as easing inflation from June onward allows the central bank to hold off on its policy tightening campaign, Sun said in an interview with Bloomberg Television on Wednesday.

Bloomberg News