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Stocks fall as Wen says economy faces uncertainties

(China Daily/Agencies)
Updated: 2009-08-26 07:53

Chinese stocks, the world's worst performers this month, extended declines yesterday after Premier Wen Jiabao said the economy faces many "uncertainties" and China Construction Bank Corp warned of asset bubbles.

Aluminum Corp of China Ltd slid 2.9 percent after it posted a third quarter loss, and Wen said a "decline in external demand may continue for a longer time" while excess production capacity may restrain industrial growth, according to a statement posted on the government website after the market closed on Monday. China Construction Bank Corp sank 4.3 percent after Chairman Guo Shuqing said "there's definitely a bubble in the stock market as well as the property market".

The Shanghai Composite Index, which tracks the larger of China's stock exchanges, fell 77.63, or 2.6 percent, to 2,915.80 at close yesterday, the biggest loss since Aug 19. It has dropped 15 percent this month on speculation economic growth will falter and the government will curb new lending.

"Investors had been expecting corporate earnings to improve from the very start of the year, but that seems not to have materialized," said Zhang Ling, who helps oversee about $7.21 billion at ICBC Credit Suisse Asset Management Co in Beijing. "It looks like there won't be any catalyst for corporate earnings going forward."

The CSI 300 Index, measuring exchanges in Shanghai and Shenzhen, declined 3.7 percent to 3,109.83.

'Adjustment measures'

China will keep its "macroeconomic adjustment measures", such as stimulating domestic demand, maintaining market liquidity, reviving enterprises, promoting innovation and improving social security, Wen was quoted as saying. Authorities can't be "blindly" optimistic, he said.

Related readings:  Stocks rise, led by metal producers  Stocks rebound on healthier economic indicators  China's stocks rebound on Thursday  Stocks plunge on lending concerns

Western Mining Co, China's fourth-largest maker of zinc concentrate, slumped 6 percent to 14.18 yuan after saying its first-half profit plunged 94 percent from a year earlier on lower metal prices and predicting its nine-month profit might fall more than 50 percent.

"The weak earnings have prompted investors to think seriously about whether it's the time to put money into equities now," Citic Securities Co analyst Sun Chao said.

The Shanghai index is headed for its first monthly drop since December. The gauge slid 16 percent from its high on Aug 4, when it more than doubled from the low in November last year. Equities on the Shanghai Composite trade at 30 times earnings, down from a multiple of 38 times on Aug 4.

"We are still within the same market correction that started in early August," said Gabriel Gondard, deputy chief investment officer at Fortune SGAM Fund Management Co Ltd. "When you sit on a 100 percent year-to-date upside, you'll usually find some steady selling pressure somewhere."

The government plans to tighten capital requirements for banks, threatening to curb the record lending that helped to fuel the equities rally this year, three people familiar with the matter said last week.