China's stocks slid anew on Tuesday, with the benchmark index in Shanghai touching its lowest level in seven months amid concerns that the People's Bank of China will go for more monetary tightening to rein in spiraling asset prices.
The Shanghai Composite Index dropped 35.33 points, or 1.2%, to end at 2,835.28, the lowest since Sept. 30.
The CSI 300 Index slid 1.6% to 3,019.45. Futures on the CSI 300 expiring this month, the most active contract, dropped 0.7% to 3,069.4.
China shares, which resumed trading today after a holiday on Monday, opened sharply lower in a knee-jerk response to the central bank's move over the weekend to increase banks' reserve requirement ratio for the third time this year.
The reserve requirement will increase 50% effective May 10, the People’s Bank of China said on May 2. The current level is 16.5% for the biggest banks and 14.5% for smaller ones.
The third increase in the reserve requirement this year won’t be sufficient to rein in inflation and asset price bubbles, according to Goldman Sachs and Royal Bank of Canada. China needs to rein in credit to keep price increases in check, they added.
Measures to cool the real-estate market have included a ban on loans for third-home purchases and raising mortgage rates and down-payment requirements for second-home purchases.
The Shanghai Composite plunged 7.7% last month, the biggest decline since January, as the government unwound monetary stimulus and stepped up measures to prevent a housing bubble inflated by record lending last year. It has slumped 13% in 2010, the world’s third-worst performer.
Industrial & Commercial Bank of China and Bank of China decline after Deutsche Bank said the reserve ratio increase removes 300 billion yuan (US$44bn) from the financial system. China Vanke Co. and Poly Real Estate Group Co. tumbled more than 4%.
Guangzhou Pharmaceutical Co. led gains for drugmakers on bets the government will announce measures to boost the industry.
Vanke, China's biggest listed property developer, fell 4.5%, the lowest since March 2009. Poly Real Estate, the second largest, slid 7.5%.
Citic Securities Co., the biggest listed brokerage, plunged the 10% daily cap as it resumed trading today after a 12-day suspension. The brokerage and France’s Credit Agricole SA said they are in exclusive talks to combine their global equity brokerage units and investment-banking operations in Asia.
Guangzhou Pharmaceutical jumped 6.8%, the most in more than three months. Beijing Tongrentang Co., a maker of traditional medicine, climbed 5.1%. Kangmei Pharmaceutical Co. gained 4.8%.
Jiangsu Skyrun Corp., a manufacturer of textile products, surged the 10% daily limit after its parent company received regulatory approval for a restructuring plan
