China's Stocks Fall on Concern Japan Tensions May Hurt Economy - Businessweek

China’s stocks fell, dragging down the benchmark index to the lowest level in almost two weeks, on concern escalating tensions with Japan over a territorial dispute will hurt trade and deepen an economic slowdown.

Guangzhou Automobile Group Co., which has ventures with Japanese automakers including Toyota Motor Corp., slid for a second day as a Chinese industry association said some dealerships that sell Japanese cars have shut after some outlets were attacked amid a territorial dispute. Zijin Mining Group Co. and Jiangxi Copper Co. led a gauge of material producers to the biggest slump among 10 industry groups.

“Historically, whenever there’s unrest nearby, stocks will decline because of the uncertainty,” Zhang Gang, a strategist at Central China Securities Holdings Co., said by phone in Shanghai today. “With no new stimulus from the central bank, investors are negative and stocks keep going down.”

The Shanghai Composite Index (SHCOMP) slid 0.7 percent to 2,064.70 as of 11:17 a.m. local time, on course for the lowest close since Sept. 6, while the CSI 300 Index (SHSZ300) declined 0.7 percent to 2,242.43. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong retreated 0.5 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, slid 1.7 percent in New York.

The Shanghai Composite had fallen 6.2 percent this year on concern the government isn’t loosening monetary policy or introducing stimulus policies fast enough to counter the slowdown in the economy. It’s valued at 9.5 times estimated earnings, compared with the 17.5 average since Bloomberg began compiling the weekly data in 2006.

Japanese automakers

China is preparing economic sanctions if Japan does not cancel its recent purchase of disputed islands, the Hong Kong Economic Journal reported. China and Japan’s worst diplomatic crisis since 2005 is putting at risk a trade relationship that’s tripled in the past decade to more than $340 billion.

Panasonic Corp. and Canon Inc. yesterday said they’re shutting some plants in China through today and the China Automobile Dealers Association said the protests will hurt sellers of Toyota, Honda and Nissan cars in China more than Japan’s March 2011 earthquake.

Guangzhou Automobile declined 1.6 percent to 5.44 yuan, extending a record low. In Hong Kong, Dongfeng Motor Group Co., which produces cars with Nissan Motor Co. in China, plunged 4.1 percent to HK$9.23.

Stocks also fell after the Chinese central bank said it’s placing more emphasis on price stability, boosting concern it will delay easing monetary policy even as the economy slows.

The People’s Bank of China is focusing more on keeping “overall price levels basically stable,” it said in a report yesterday from Beijing. The authority has held off from loosening monetary policy further after cutting interest rates in June and July. Inflation that accelerated for the first time in five months in August may limit any monetary easing.

QE3 Concern

A third round of quantitative easing announced last week by the U.S. Federal Reserve reduces room for China’s policy easing as it may add to the nation’s inflationary pressure, Industrial Securities Co. said in a report yesterday.

The Shanghai Composite plunged 2.1 percent yesterday, narrowing this month’s gains to 1.4 percent. A rebound for stocks on QE3 isn’t sustainable because the fundamentals of cyclical industries may not improve until the first half of next year, Cheng Dinghua, an analyst at Essence Securities, said in a report dated yesterday. Essence Securities was second ranked for equity strategy research by New Fortune magazine last year.

Zijin Mining, the biggest gold producer lost 2.5 percent to 3.88 yuan. Jiangxi Copper, the largest copper producer, slid 2.1 percent to 21.99 yuan. Commodities fell for the first time in eight days on concern that the U.S. stimulus may not be enough to jumpstart the U.S. economy and spur demand.

Home Prices

The Standard & Poor’s GSCI Index of 24 raw materials tumbled 2.2 percent to 678.68, the biggest one-day drop since July 23. Copper prices fell as much as 0.8 percent to $8,238 a metric ton on the London Metal Exchange, while spot gold fell as much as 0.4 percent to $1,753.75 an ounce.

China’s economy continues to face some difficulty for a period of time on the sluggish U.S. and European economies and because of domestic factors, according to a commentary published by Xinhua News Agency.

Chinese new home prices rose in fewer cities last month than in July, reducing concern that the government may issue new tightening measures. Prices climbed in 35 cities out of the 70 the government tracks, according to data released by the statistics bureau. Prices fell in 19 cities, the data showed.

The iShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., retreated 1.3 percent yesterday from a one-month high to $34.74.

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net