Stocks fall amid inflation concerns

Investors watch share price movements at a brokerage in Haikou, capital of Hainan province. [Photo/China Daily]

SHANGHAI - China's stocks fell, dragging the benchmark index down for a second day, on concern rising consumer prices and surging fund flows may spur the government to boost interest rates and increase capital controls.

Industrial and Commercial Bank of China Ltd (ICBC) dropped the most this month. China Vanke Co and Poly Real Estate Group slid more than 3 percent after higher borrowing costs failed to lower home prices.

"Speculation that the October CPI was 4.4 percent is the main reason that's driving the market down on Wednesday," said Tu Hai, a strategist at Guoyuan Securities Co in Shanghai.

The Shanghai Composite Index dropped 0.63 percent to 3,115.36 at the 3 pm close on Wednesday. The CSI 300 Index fell 0.7 percent to 3,499.11, as losses for financial companies overshadowed gains for consumer and healthcare stocks.

A gauge of property companies slid 2.8 percent, the most among the five groups in the Shanghai Composite. China Vanke plunged 3.7 percent, while rival Poly Real Estate Group Co slid 4.6 percent on Wednesday.

Home prices in 70 cities climbed 8.6 percent in October from a year earlier, China Information News reported on Wednesday. That is slower than the 9.1 percent increase in September and the 8.9 percent median estimate in a Bloomberg News survey of six economists.

China has tightened measures on home purchases this year, suspending mortgages for third-home purchases and pledging to speed up trials of property taxes nationwide. It also raised interest rates in October for the first time in three years on concerns of inflation and relentless growth in asset prices.

Kweichow Moutai Co, a Chinese liquor maker, led gains for consumer staples providers, rising 8.4 percent on Wednesday. Luzhou Laojiao Co gained 5.4 percent and Wuliangye Yibin Co added 4.1 percent on Wednesday.

"Food and beverage stocks and healthcare providers are in a stronger position to pass on costs in an inflationary environment," said Wang Yongfeng, analyst at Rising Securities.

Inflows into emerging-market stock funds have surpassed $60 billion and exceeded $46 billion in bonds, with both poised for their best year since Cambridge, Massachusetts-based EPFR Global started tracking them in 1995.

The State Administration of Foreign Exchange will tighten management of banks' foreign-debt quotas and introduce new rules on their currency provisioning, the regulator said in a statement on Tuesday.

Drugmaker stocks rose after the government announced plans to speed up a restructuring of the pharmaceuticals industry. Harbin Pharmaceutical Group Co gained 2.5 percent on Wednesday. Yunnan Baiyao Group Co, a producer of traditional Chinese medicine, added 5.8 percent on Wednesday.

China will push for mergers and acquisitions in the industry, the Ministry of Industry and Information Technology said in a statement on its website on Tuesday.

Bloomberg News