China's stocks plunged, driving the benchmark index down the most in almost eight months, on concern a government crackdown on the property market will increase bad loans and damp consumer spending.
A gauge tracking Chinese real-estate stocks tumbled 6 percent to a one-year low, led by China Vanke Co and Poly Real Estate Group Co, after the State Council told banks to stop loans for third-home purchases. Industrial & Commercial Bank of China Ltd slid 4.7 percent, the most since Oct 2008. Anhui Conch Cement Co led losses by construction material companies.
"The market is worried about the impact of government measures to tame property price increases," said Xu Lirong, who oversees about $2.6 billion at Franklin Templeton Sealand Fund Management Co in Shanghai. "I think more measures will be introduced."
The Shanghai Composite Index slumped 126.14, or 4 percent, to 3,004.16 at 2:32 pm, the biggest decline since Aug 31. The gauge is the world's third worst-performing stock market this year, losing 8.3 percent, as the government unwound monetary stimulus to avert asset-price bubbles after banks extended record credit last year.
Stocks across the Asian region declined, dragging the MSCI Asia Pacific Index down by the most in two months, on concern a US suit against Goldman Sachs Group Inc signals increasing regulatory scrutiny on financial companies.
The CSI 300 Index retreated 4.3 percent to 3,213.45, with six of the 10 industry groups declining more than 4 percent. All four contracts on CSI 300 fell on the China Financial Futures Exchange.
Government measures
Vanke, the nation's biggest property developer, slumped 6.9 percent to 8.42 yuan, the most since Aug 31. Poly Real Estate declined 8 percent to 17.16 yuan, set for its lowest close in a year. The Se Shang Property Index slid 6 percent, the biggest drop since Aug 31 and leading declines among the Shanghai Composite's five industry groups.
China told banks to stop loans for third-home purchases in cities with excessive property price gains and suspend lending to non-residents without tax returns or proof of social security contributions in that city, according to a statement by the State Council on April 17. Local governments may also limit the number of units that can be bought, according to the statement.
"These are the most draconian measures on the property market in history," Jun Ma, Deutsche Bank AG's Greater China chief economist, wrote in a note to clients today. Chinese press reports point to "panic selling" by investors who own more than one home in Shanghai, Beijing and Shenzhen, he said.
Property 'heroin'
China's latest moves to cool its property market come after previous measures failed to slow gains in housing prices, which rose at a record 11.7 percent in March. The world's third- biggest economy this year told banks to set aside more deposits as reserves, raised mortgage rates and re-imposed a sales tax on homes.
Prices of mid- and high-end properties may tumble 20 percent and monthly transaction volumes may slide more than 50 percent in the coming months, Ma said.
The rally in property prices prompted former Morgan Stanley economist Andy Xie to call the nation's asset markets a bubble that will burst once the government curbs credit. China is "on a treadmill to hell," with growth driven by the "heroin of property development," hedge fund manager James Chanos said this month.
Banks declined on concern non-performing loans may increase. Industrial & Commercial Bank of China Ltd lost 4.7 percent to 4.67 yuan, the most since Oct 29, 2008. Bank of China Ltd, the third-largest lender, retreated 2.9 percent to 4.08 yuan. Industrial Bank Co dropped 8 percent to 31.10 yuan.
Asset quality concerns
"The latest measures on third-home mortgages will exacerbate concerns of asset quality and lower earnings estimates," Chen Qi, a Shanghai-based analyst at CSC Securities HK Ltd, said in a telephone interview today.
China has this year targeted a 22 percent reduction in new loans from a record of $1.4 trillion and twice asked lenders to set aside more cash as reserves to prevent the economy from overheating.
Gross domestic product grew 11.9 percent in the first quarter from a year earlier, the biggest gain since the second quarter of 2007, the statistics bureau said last week.
Baoshan Iron & Steel Co, the nation's largest steelmaker, slumped 5.9 percent to 7.19 yuan. Anhui Conch Cement, the largest cement producer, plunged 5.8 percent to 39.42 yuan, a sixth day of losses. Jiangxi Copper Co, the country's biggest producer of the metal, slipped 5.1 percent to 34.99 yuan. PetroChina dropped 2.8 percent to 12.67 yuan.
'Austerity' measures
Gold futures slumped 2 percent, the most since Feb 4, to $1,136.90 an ounce in New York. The Reuters/Jefferies CRB Index of 19 raw materials fell 1.2 percent to 276.29, the biggest decline since Feb 25.
Investors should avoid property, banking, steel and construction material stocks as market reaction to the "austerity" measures may be negative in the near term, Jerry Lou and Allen Gui, Morgan Stanley analysts, wrote in a note to clients. They said a property tax is "finally coming close".
Shanghai may tax individuals who own multiple properties, the China Times reported, citing an unidentified person close to the Ministry of Finance.
