China's Stocks Decline on Valuation Concern; Banks Lead Drop By Zhang Shidong and Yidi Zhao http://www.bloomberg.com/apps/news?pid=20601087&sid=a.uHLvrm7qlk&refer=home March 1 (Bloomberg) -- China's stocks, the catalyst for a global selloff this week, extended declines on concern shares are too expensive relative to earnings. Industrial & Commercial Bank of China Ltd. and Bank of China Ltd. led the drop. ``The whole market, including the banking sector, is coming under pressure for being overvalued,'' said Liang Feng, who manages about $40 million at Citic Fund Management Co. in Beijing. ``Some of the selloff comes from mutual funds, which are facing redemptions from unit holders.'' The Shanghai and Shenzhen 300 Index, which tracks yuan- denominated A shares listed on China's two exchanges, slid 68.82, or 2.7 percent, to 2475.75 as of 2:10 p.m. local time. The measure added 3.5 percent yesterday, after plunging 9.2 percent two days ago. It has climbed 21 percent this year. The key measure is valued at 38 times earnings, compared with 15 times for the Morgan Stanley Capital International Emerging Markets Index. The Shanghai Composite Index, which tracks the bigger of China's stock exchanges, dropped 3 percent to 2795.28. The Shenzhen Composite Index, which covers the smaller one, lost 2.3 percent to 719.80. ICBC, the nation's biggest listed lender, fell 0.15 yuan, or 3.1 percent, to 4.75. Bank of China, the second biggest, lost 0.11 yuan, or 2.3 percent, to 4.68. Chinese banks trade at an average 2.97 times this year's forecast book value in Hong Kong and 3.04 times in Shanghai, based on the closing prices of Feb. 27, according to UBS AG. That compares with an average of 2.1 times for banks in global emerging markets. Falling Further Shenzhen Development Bank Co., the Chinese partner of San Francisco buyout firm Newbridge Capital Ltd., lost 0.73 yuan, or 3.8 percent, to 18.33. The lender trades at 4 times its estimated book value, making it the second most expensive bank stock on the mainland after Shanghai Pudong Development Bank Co. Shanghai Pudong, the partner of Citigroup Inc., fell 0.55 yuan, or 2.5 percent, to 21.77. It trades at 4.04 times its book value. China Merchants Bank Co., the nation's No. 3 publicly traded lender, declined 0.34 yuan, or 2.1 percent, to 15.75. China's bank stocks are expensive and will fall 5 percent to 18 percent further this year, CLSA said in a report yesterday. The central bank's efforts to curb credit will slow asset growth. A measure of the Shanghai and Shenzhen 300's 10-day volatility is at 67 percent, the highest ever in its two-year history. Volatility has exceeded 64 percent each day this week, up from 21 percent on Feb. 26, before a five-day holiday for the Lunar New Year. `Bubbles' The Feb. 27 slump was a ``normal correction,'' Zhu Jian, the Shanghai-based director of the China Securities Regulatory Commission, said in a phone interview yesterday. The government has no plans to buoy the stock market, he said. The government must pay attention to ``bubbles'' in its stock market before they get out of hand, Cheng Siwei, vice chairman of the Nation's People Congress, wrote in a commentary published Feb. 6 in the Chinese-language Financial News. The Congress next convenes for an annual meeting on March 5. ``Investors worry that there's a lack of support for Chinese stocks when the market remains volatile,'' said Conita Hung, head of research for Delta Asia Securities Ltd. in Hong Kong. ``Besides, people are still cautious ahead of the NPC. They choose to cash in.'' Not all shares were losers. Ping An Insurance (Group) Co., China's second-largest insurer, jumped as much as 51 percent on its debut in Shanghai after investors flocked to the world's biggest stock sale by an insurer. Kweichow Moutai Surges Ping An's stock rose as high as 50.97 yuan from its offer price of 33.80 yuan and recently traded at 47.96 yuan. Ping An sold 38.9 billion yuan ($5 billion) of shares. Kweichow Moutai Co., the maker of Moutai, the fiery liquor used at official banquets, surged 8.76 yuan, or the 10 percent daily cap, to 96.40. The company said today it raised prices by 12 percent on growing demand. The price increase, which doesn't apply to Moutai's high- end products, may help boost sales by 10 percent this year, the company said in a statement. Sales growth averaged about 30 percent in the past five years, as rising income enables people to drink more alcohol in the world's most populous country.
``Some of the selloff comes from mutual funds, which are facing redemptions from unit holders.'' Stormy weather...it is a brewin'. Hairdressers no longer playing the markets in China?