China’s Stocks Drop as Commodity Producers, Smallcaps Decline

Jan. 25 （Bloomberg） -- China’s stocks fell on speculation that policy tightening will hamper demand for commodities and small companies will extend this year’s plunge amid concern they are overvalued and as demand for initial public offerings slumps.

Aluminum Corp. China Ltd. and Zhongjin Gold Co. lost more than 1.5 percent after aluminum and gold prices dropped. A gauge of smaller companies retreated to a five-month low. Jiangsu Skyray Instrument Co., Wonders Information Co. and two other smallcaps fell on their first day of trading.

“Investors are seeking a haven for their money before the Chinese New Year, moving to sectors with lower valuations,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Smaller companies are regarded as more risky at the moment.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slid for a second day, losing 15, or 0.6 percent, to 2,680.71 at the 11:30 a.m. break. The CSI 300 Index slipped 0.5 percent to 2,940.97.

The Shanghai gauge has lost 15 percent since a Nov. 8 high after the central bank raised the reserve requirement ratio for banks and interest rates to counter inflation. Inflation rose to a 28-month high of 5.1 percent in November before slowing to 4.6 percent last month.

A gauge of material producers dropped 1.1 percent in the CSI 300 Index. Zhongjin Gold fell 4.1 percent to 31.75 yuan, set for the lowest close since Aug. 3. Shandong Gold Mining Co. lost 3 percent to 41.90 yuan. Aluminum Corp. of China dropped 1.6 percent to 10.25 yuan.

Smallcaps Slide

Gold for immediate delivery dropped as much as 0.3 percent to $1,331 per ounce, taking its decline from a Dec. 7 record to more than $100. The precious metal, which peaked at $1,431.25 per ounce last month, traded at $1,331.75 per ounce at 9:10 a.m. in Singapore, a two-month low. Aluminum futures price slid 0.2 percent to $2,408.50 a ton, extending declines for a second day on the London Metal Exchange.

The CSI Smallcap 500 Index slid 1.3 percent to 4,339.86, the lowest since Aug. 13. Still, the gauge trades at 42.7 times earnings, compared with 17.6 times for the CSI 300 Index. It has fallen 12 percent this year after gaining 98 percent over the past two years.

“Judging by mutual funds’ stock positions, the correction in the stock market isn’t over yet and lots of them are still selling small-caps,” said Liu Zhaoyang, a Shanghai-based analyst at Howbuy, a consulting firm on investment funds.

China’s mutual funds boosted their stock holdings to a near-record high, a signal to fund trackers that investors are overly optimistic and equities may decline further.

Jiangsu Skyray declined from its IPO price of 65 yuan, sliding 15 percent to 55.22 yuan. Wonders Information fell 9.8 percent to 25.26 yuan. Shenzhen Dvision Video Communications Co. dropped 12 percent to 45.02 yuan, while Beijing Orient National Communication Science & Technology Co. fell 12 percent to 48.98 yuan.

A gauge tracking financial companies and developers in CSI 300 Index gained 0.5 percent on speculation that the 27 percent drop last year was excessive.

Bank of China Ltd., the nation’s fourth biggest lender, rose 0.9 percent to 3.23 yuan. China Vanke Co., the largest developer, climbed 0.4 percent to 8.48 yuan.