China shares slip on property tax talk
Chinese shares slipped on Monday, heading towards a key near-term support level, after a rise in lenders' reserve requirements and talk of a property tax in Shanghai kept bank and developer stocks under pressure.
January 17, 2011 / 16:09 IST
Chinese shares slipped on Monday, heading towards a key near-term support level, after a rise in lenders' reserve requirements and talk of a property tax in Shanghai kept bank and developer stocks under pressure.
China's key stock index dropped 2.1% at midday after the People's Bank of China announced a rise in lenders' required reserves for the fourth time in just over two months as it battles inflation. Hong Kong's Hang Seng Index slipped 0.3%, easing from a two-month high, and reversed earlier mild gains as advances in technology and local commercial property shares were not enough to keep the benchmark in the black.China's central bank raised banks' required reserves by another 50 basis points, effective January 20, as it makes fighting inflation one of its top priorities for the new year."The RRR hike strengthened expectations of further tightening steps, including a possible interest rate hike," said analyst Li Wenhui at Huatai Securities in Nanjing."But Monday's fall appeared to be excessive as a RRR hike is not such a stern tightening step," he said. "The index should be able to find a support soon, possibly around 2,700 points."Banking and property stocks were hit the hardest as cash supply in these sectors will be heavily affected by quantitative tightening steps and will eventually trim corporate earnings.The property sub-index fell 3.8%.Shanghai's mayor said on Sunday that one of the city's main tasks this year would be to prepare for the trial run of a property tax to curb speculative investments in the real estate sector.Top lender ICBC dropped 2.8%, while the biggest listed property developer China Vanke tumbled 4.4%. Shanghai's property index dropped 3.8%.As an indication of less cash flow, China's benchmark money rate, the weighted average seven-day government bond repurchase rate , rose nearly 6 basis points to 2.5865% at midday.HK lower, China banks weighMainland banking shares were lower in Hong Kong which offset gains in local developers and internet firm Tencent Holdings and dragged the broader market lower.Commercial property developers rose with traders pointing to reports which said rents rose between 56% to 140% on recent contract renewals.Wharf Holdings rose 1.8% with shares hovering near a record high hit earlier this month. Cheung Kong Holdings rose 2.3%.However, shares of the heavily weighted mainland banks tracked declines of their Shanghai-listed counterparts and weighed on the broader market."Investors should be cautious that the recent Hong Kong market rally is concentrated on some large-cap stocks with heavy weightings in the HSI rather than market-wide," said Alan Lam, Greater China analyst at Julius Baer in Hong Kong."We have also seen recent corrections in some Asian markets last week due to capital withdrawal," said Lam, who recommends investors should look to book some profits when the Hang Seng index nears the 24,500 level.Shares of Tencent, China's largest online gaming company, rose 2.2%.Tencent shares have risen 21.6% since the beginning of the year, the most among benchmark constituents, after a rare year of underperformance relative to the Hang Seng in 2010.Since listing back in 2005, Tencent shares have outperformed the Hang Seng significantly each year except 2010, when its flat returns lagged the Hang Seng's 5.3% advance.With shares of the company trading at a record high and looking overbought on the charts, some analysts are cautious on investors getting in at these levels.Johnie Hu, analyst at BOC International, reiterated his "sell" rating on the stock, saying investors should take profit after the recent rally amid uncertainty over the impact of new Internet regulations on the company's operations. Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
