Aug. 18 (Bloomberg) -- China's benchmark stock index, the world's worst performer this month, may fall another 10 percent as bank lending slows, said Andy Xie, a former Morgan Stanley
chief Asian economist.
"The current correction is reflecting the tightening in lending," said Xie, who correctly predicted in April 2007 that China's equities would tumble. "We've seen the peak of this market cycle, though there's likely to be a bounce as the government seeks to stabilize the market."
The benchmark Shanghai Composite Index plunged 5.8 percent yesterday, the most since Nov. 18, extending its decline from this year's high on Aug. 4 to 17 percent. The gauge, the worst
performer among 89 benchmark indexes tracked by Bloomberg worldwide, sank as foreign direct investment plunged and Yunnan Copper Industry Co. posted a loss, saying there are "no clear signs" of a recovery. The Bank of New York Mellon China ADR Index, which tracks American depositary receipts, slumped 5 percent, the most since March 2. Prime Minister Wen Jiabao's 4 trillion yuan ($585 billion) stimulus package, coupled with record bank lending in the first six months, helped the Shanghai index more than double this year from the low on Nov. 4. An estimated 1.16 trillion yuan of loans were invested in the stock market in the first five months, China Business News reported on June 29, citing Wei Jianing, a deputy director at the Development and Research Center under the State Council, China's Cabinet.
The equities rally faltered as new loans in July fell to less than a quarter of June's level and the securities regulator allowed initial public offerings after a nine-month moratorium.
Government Support
The government may order the national social security fund to support the market before Oct. 1, when the Communist Partycelebrates the 60th anniversary of taking power, according to
Xie. Other measures that may be taken include halting the approval of IPOs and share placements, he said. "This is not the bursting of the bubble," Xie, who is now an independent economist, said by telephone. "The government will be under pressure to take action because a lot of people have lost money."
Van Eck Associates' David Semple, whose emerging-markets fund is beating 99 percent of its peers this year, said China's yuan-denominated A shares, which trade in Shanghai and Shenzhen,
may rebound on the prospect of government support. "A-share valuations look fully priced but I don't think it's a bubble like we saw with Internet stocks," said Semple, who helps manage about $13 billion in commodities and equities including Hong Kong-listed H-shares at New York-based Van Eck, said in a phone interview. "I wouldn't be surprised if we start
to hear positive comments from the government."
Foreign Investment
Ping An, the nation's second-biggest insurance company, fell 3.9 percent yesterday after first-half net income dropped 45 percent. Yunnan Copper sank the 10 percent daily limit after
posting a first-half loss and the metal dropped by the maximum in Shanghai. In New York, the American depositary receipts of Aluminum Corp. of China, the nation's largest producer of the
metal, fell 7.3 percent to $27.94. China Life Insurance Co., the biggest insurer, declined 4.6 percent to $61.10.
Foreign direct investment fell 35.7 percent in July, retreating for a 10th straight month, as companies stalled expansion plans amid the global financial crisis, the commerce
ministry said in Beijing yesterday. Prime Minister Wen Jiabao said Aug. 9 the government will
maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession. Billionaire Li Ka-shing, who predicted China's stock-market bubble would burst in 2007, said last week the global economy
won't recover this year and told investors to be "cautious" about buying shares, especially with borrowed money.
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