Equities plunge on loan curb worries

Slides
Photos

(China Daily)
Updated: 2009-10-30 08:10

Mainland stocks fell to a two-week low, led by banks and developers, as Bank of Communications Ltd reported profit that missed analyst estimates and the government said it plans to tighten rules on personal loans.

Bank of Communications slid 3.2 percent after its profit climbed a smaller-than-expected 1.5 percent. Industrial & Commercial Bank of China Ltd lost 2.2 percent while China Vanke Co dropped 3.8 percent as the banking regulator said it's tightening rules to ensure loans enter the real economy instead of being used for speculation.

The Shanghai Composite Index lost 70.86, or 2.34 percent, to 2,960.36, closing at the lowest level since Oct 13. The CSI 300 Index declined 2.47 percent to 3,247.05.

Loans exceeding 300,000 yuan will be given directly to the counterparty of the borrower rather than the borrower, the China Banking Regulatory Commission said in a statement on its website on Wednesday.

"This is the very first step toward tightening," said Gabriel Gondard, Shanghai-based deputy chief investment officer at Fortune SGAM Fund Management Co, which oversees about $7.2 billion. "They're taking action now because the economic figures last week were reassuring."

China's economy grew 8.9 percent last quarter, the fastest pace in a year. New loans tripled to 7.37 trillion yuan in the first half from a year earlier after the government eased restrictions to revive the economy. The credit boom has fanned concern that funds are being used for speculation, increasing the risk of asset bubbles and bad loans.

An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months of this year, China Business News reported on June 29, citing Wei Jianing, a deputy director at the State Council Development and Research Center.

A slump in new lending in July sent the Shanghai Composite plunging 22 percent in August. Even so, the index has rallied 66 percent this year through Wednesday, while a measure tracking 24 property stocks has surged 122 percent, the best performer among the five industry groups. The real-estate group index fell 4.7 percent yesterday, its biggest drop in almost two months.

China may next year stop allowing banks from offering mortgage loans with interest rates that are 30 percent less than the central bank's benchmark rate, the Shanghai Securities News reported yesterday.

Hang Seng down

Hong Kong stocks ended down for a third straight session yesterday. The Hang Seng Index closed down 2.28 percent, or 496.59 points, at 21,264.99, its lowest in more than three weeks.

The China Enterprises Index of top locally listed mainland stocks was down 2.84 percent at 12,466.67.

(For more biz stories, please visit Industries)