Hong Kong, China shares plummet as property curbs hit developers

Last Updated: Mon, Mar 04, 2013 17:30 hrs

* HSI -1.3 pct, H-shares -2 pct, CSI300 -3.8 pct

* CSI300 set for worst daily loss since January 2011

* Vanke, Poly Real Estate A-shares down maximum 10 pct

* Beijing's move will "freeze" property market near term: UBS

* HSBC slips ahead of 2012 full-year earnings

By Clement Tan

HONG KONG, March 4 (Reuters) - Hong Kong and China shares fell sharply on Monday, with the CSI300 set for its worst day in two years after Beijing hit property developers with more tightening measures to contain housing costs that were harsher than expected.

The State Council had demanded late on Friday an increase in required down payments and loan rates for buyers of second homes in cities where prices are rising too quickly. The announcement came ahead of the start of China's annual parliamentary meetings.

At the midday trading break, the CSI300 of the top Shanghai and Shenzhen A-share listings was down 3.8 percent, set for its worst daily showing since January 2011. The Shanghai Composite Index dived 2.9 percent in heavy midday volume.

The Hang Seng Index shed 1.3 percent to 22,582.9, while the China Enterprises Index of the top Chinese listings in Hong Kong sank 2 percent. Midday bourse turnover was at its heaviest since Feb. 5.

"Friday evening's announcement was very significant and beyond the expectation of many in the market," said Hong Hao, chief equity strategist at Bank of Communication International Securities.

"We are in a high risk zone now. I wouldn't advise clients to add risk in the near term, since property is a huge sector. This will have a ripple effect on other sectors in the economy," Hong added.

China's two largest developers by sales, Shenzhen-listed China Vanke and Shanghai-listed Poly Real Estate each dived by the maximum 10 percent limit. The Shanghai property sub-index was down 9.1 percent, poised for its worst daily loss since June 2008.

In Hong Kong, China Resources Land slumped 8 percent, reversing losses on the year. It is now down 1.7 percent in 2013, compared with a 0.3 percent loss on the Hang Seng Index and 2.7 percent slide on the China Enterprises Index.

China State Construction Engineering, the country's largest construction contractor, tumbled 9.1 percent in Shanghai. Anhui Conch Cement , China's largest cement producer, slumped 9.5 percent in Shanghai and 5.3 percent in Hong Kong.

The move to tighten on Friday evening also involved an extension of home purchase restrictions to cover all districts and all product types and stricter enforcement of a 20 percent capital gains tax on property sales.

Lee Wee-Liat, BNP Paribas' head of Asia property research, said in a note dated March 3 that he expects the announcement on the expansion of property taxes to more cities in April.

UBS downgraded their target prices by an average of 13 percent for 12 Hong Kong-listed Chinese developers they cover, expecting new measures to "freeze" the entire market and delay the originally planned sales schedules in the near term.

In the bond market, Chinese property bonds are down by 50 cents to a point lower in early deals with analyst watching if local governments will follow up with their own measures.

China's property market has been rife with speculation about rising house prices and what the country's new leadership may do to curb them in the lead up to this week's annual parliamentary meetings.

The annual Chinese People's Political Consultative Conference began on Sunday and the National People's Congress, where Xi Jinping is expected to be confirmed as president, starts in Beijing on Tuesday.


Chinese banks were also key sources of weakness after UBS lowered price targets for the sector's Hong Kong listings by 3 to 16 percent and downgraded Agricultural Bank of China (AgBank) from "neutral" to "sell" and Bank of China (BoC) from "buy" to "neutral".

"We believe record high credit expansion in January will trigger earlier-than-expected credit tightening in the second quarter of 2013," UBS analysts said in a note dated March 1, which also flagged rising risks from shadow banking.

AgBank shares were down 1.8 percent in Hong Kong and 3.4 percent in Shanghai. BoC shares each sank 1.7 percent in Hong Kong and Shanghai.

HSBC Holdings slipped 0.8 percent ahead of its 2012 full-year corporate earnings due after market close on Monday. Up 4.1 percent on the year, it is currently trading at a 40 percent discount to its forward 12-month price-to-book multiple, according to Thomson Reuters StarMine.

In the last 30 days, 5 of 18 analysts downgraded their full-year 2012 earnings-per-share estimates for HSBC by an average of 4.4 percent.

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