China's Stocks Decline From Seven-Week High on Property, Europe

China’s stocks fell from a seven-week high as speculation housing demand will weaken and the election of a new president in France may deepen Europe’s debt crisis overshadowed government measures to bolster equities.

China Vanke Co. (000002) led declines for developers after the Xinhua News Agency reported Industrial & Commercial Bank of China Ltd. suspended a discount on mortgages for first-time home buyers nationwide. PetroChina Co., the nation’s second-largest refiner, dropped the most in five weeks after the Shanghai Securities News said fuel prices may be cut today. Aluminum Corp. of China Ltd. jumped 4.3 percent after its parent said the government asked it to play a leading role in the consolidation of the rare earth industry.

“Concerns about Europe’s debt are back and that will hurt global investors’ risk appetite,” said Wu Kan, Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Expectations for an easing of property curbs have faded and the overall policy tone is still tight.”

The Shanghai Composite Index (SHCOMP) slipped 7.44 points, or 0.3 percent, to 2,444.58 as of 1:10 p.m. local time. Thirty-day volatility in the Shanghai Composite was at 16.5 today, the lowest since March 27. The CSI 300 Index (SHSZ300) fell 0.2 percent to 2,709.68. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, retreated 1.5 percent in New York on May 4.

Weekly Performance

The Shanghai index advanced 2.3 percent last week to the highest level since March 13 after the securities regulator cut trading costs and manufacturing expanded for a fifth month in April. About 10.2 billion shares changed hands on May 4, 12 percent higher than the daily average this year.

The gauge has climbed 11 percent this year on expectations the government will relax monetary policies to spur economic growth. Stocks in the gauge are valued at 10.5 times estimated earnings, compared with a record low of 8.9 times on Jan. 6, according to weekly data compiled by Bloomberg.

Vanke, the nation’s largest listed property developer, fell 1.8 percent to 9.05 yuan. China Merchants Property Development Co. (000024), the third largest by market value, slid 2 percent to 23.28 yuan. Gemdale Corp., the fourth biggest, lost 2.1 percent to 6.66 yuan.

ICBC, the largest lender, notified its borrowers of scrapping the mortgage rate discount by phone last week, Xinhua reported. The suspension was made amid tighter liquidity and “deposit instability,” according to Sophie Jiang, banking analyst at Religare Capital Markets.

Scrapping Discounts

China Construction Bank Corp., Bank of China Ltd. and Agricultural Bank of China Ltd. may follow ICBC, Religare said in a report. ICBC rose 0.9 percent to 4.42 yuan.

The MSCI Asia Pacific Index slumped 2.3 percent after Socialist Francois Hollande was elected president of France and Greek voters flocked to anti-bailout parties. Hollande’s platform calls for policies German Chancellor Angela Merkel opposes, including higher taxes, increased spending and a delayed deficit-reduction effort.

Europe is China’s biggest export market, making up about 18 percent of the nation’s overseas shipments, according to Shenyin & Wanguo Securities Co.

A government report due May 10 may show exports grew 8.5 percent in April from a year earlier, compared with 8.9 percent in March, according to the median estimate of 28 economists surveyed by Bloomberg. China’s statistics bureau is scheduled to release a set of April economic data including inflation and industrial production on May 11.

Export Slump

Export orders fell 2.3 percent year-on-year to $36 billion, the first decline since 2009, the China Securities Journal reported, citing Liu Jianjun, a spokesman with the fair. Orders from European Union countries fell 5.6 percent, according to the newspaper.

PetroChina lost 1.2 percent to 9.96 yuan, set for its biggest decline since March 29. Gasoline and diesel prices may drop by 300 yuan ($47.5) per ton, or 0.22-0.26 yuan a liter, the Shanghai Securities News reported today, citing Hu Huichun, an analyst at researcher Chem99.com.

Further measures by China to boost liquidity in equity market will continue to support outperformance of China-listed stocks and “cheap” blue chips in near term, Minggao Shen and Ben Wei, analysts at Citigroup Inc., wrote in a client note dated yesterday. A shares and H shares may challenge range highs for the first time in 2012, they wrote.

Agreements made in U.S.-China talks last week such as a higher dividend payout ratio for listed state-owned enterprises and the opening of the securities market to more foreign investors are positive for stocks, Citigroup said. Chinese regulators may soon introduce “seed funds” to invest in the stock market, it said.

Chalco Jumps

The China Securities Regulatory Commission has proposed allowing asset management companies to apply for multiple funds at the same time, according to a statement posted on the regulator’s website on May 4. China allows fund companies to apply for a single fund product any one time under the current regulation, the statement said.

Chalco, the listed unit of nation’s biggest maker of the lightweight metal, gained 4.3 percent to 7.51 yuan, heading for its biggest advance since March 21.

Parent Aluminum Corp. of China was asked by Su Bo, vice minister of industry and information technology, to accelerate the nation’s rare earth consolidation and move toward setting up a rare earth group, according to a statement on the company’s website today.

Chinese central bank short-term fund injection operations have improved liquidity and reduced the need for a reserve requirement ratio cut right now, Market News International reported, citing unidentified people familiar with discussions at the People’s Bank of China and the State Administration of Foreign Exchange.

U.S.-Traded Stocks

Chinese shares traded in New York slumped last week, pushing the benchmark index to its first weekly decline since March, on concern the global slowdown will curb demand for goods from the world’s biggest exporter.

Payrolls in the U.S. climbed 115,000 in April, the smallest increase in six months, Labor Department figures released during U.S. trading hours on May 4 showed. The median estimate of 85 economists surveyed by Bloomberg was for an increase of 160,000.

The Bloomberg China-US Equity Index of the most-traded Chinese shares in the U.S. lost 2.2 percent last week after four weeks of gains.