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China’s Stocks Slump to 7-Week Low as Economic Concerns Spur Global Rout

Aug. 5 (Bloomberg) -- Mark Mobius, executive chairman of Templeton Asset Management’s emerging markets group, talks about the outlook for global stocks and his investment strategy. More than $4.4 trillion have been wiped out from equity market values worldwide amid a sell-off that drove the MSCI All-Country World Index down more than 10 percent from this year’s high into a so-called correction. Mobius speaks from Tokyo with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

July 29 (Bloomberg) -- Hugh Young, who helps manage $70 billion in Asian equities at Aberdeen Asset Management Asia Ltd., talks about his investment strategy and the impact of the U.S. debt impasse on financial markets. Young speaks from Singapore with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

China’s stocks fell, capping the benchmark index’s worst week since May, as global equities markets plunged on concern slumping U.S. growth and Europe’s debt crisis will push the world economy into recession.

Jiangxi Copper Co. and Aluminum Corp. of China Ltd., the biggest producers of copper and aluminum, tumbled more than 3 percent after aluminum and zinc futures slid by the daily limit in Shanghai. Industrial & Commercial Bank of China (601398) Ltd. led declines by lenders on speculation the central bank will keep tightening monetary polices to tame inflation.

“China’s already-weak stock market can’t find shelter from the global rout,” said Tu Jun, a strategist at Shanghai Securities Co. “Negative factors like the European debt crisis and U.S. growth concerns have accumulated and kept adding to investors’ pessimism. That has hammered markets worldwide.’”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, slumped 57.6 points, or 2.2 percent, to 2,626.42 at the 3 p.m. close, the lowest since June 20. The CSI 300 Index (SHSZ300) declined 2.1 percent to 2,897.42.

The Shanghai gauge has fallen 2.8 percent this week on concern an agreement to raise America’s debt ceiling won’t be enough to avoid credit ratings downgrades. A report showing consumer spending dropping by the most in almost two years boosted speculation the world’s biggest economy may slip back into recession. China is scheduled to release economic data including the July inflation report on Aug. 9. The CPI probably stayed at a three-year high of 6.4 percent, according to the median estimate of 25 economists surveyed by Bloomberg.

U.S. Economy

Global stocks had their biggest one-day rout since March 2009 on concern the world economy is weakening. The MSCI All- Country World Index slid 4.1 percent to 311.60, falling 13 percent from its May 2 high. The Standard & Poor’s 500 tumbled 4.8 percent to an eight-month low in New York. Benchmark indexes in Japan, South Korea and Hong Kong fell more than 3 percent, while Taiwan’s Taiex plunged more than 5 percent.

Jiangxi Copper sank 3.6 percent to 34.34 yuan. Aluminum Corp. of China slid 3.1 percent to 9.94 yuan, the lowest close since June 2.

China’s exports will likely slow more quickly than expected because of the global economic slump, with industries such as shipping, raw materials and real estate facing the biggest risks, according to Deutsche Bank AG. Even if Chinese demand for commodities remains constant, a slowdown in U.S. and European growth will hurt material prices and reduce profitability of Chinese producers as the two regions account for 40 percent of global demand for oil and up to 30 percent for metals, Deutsche Bank said.

Global Slowdown

U.S. employment data are forecast to show the addition of 85,000 jobs last month failed to dent the country’s 9.2 percent unemployment rate. Consumer confidence dropped to the lowest level in more than two months last week in the Bloomberg Consumer Comfort Index, boosting concern Chinese exports to the U.S. will slow.

European Central Bank President Jean-Claude Trichet said the ECB has resumed bond purchases and will offer banks more cash to stop the region’s debt crisis from engulfing Italy and Spain and hurting the economy. The central bank earlier left the benchmark rate unchanged at 1.5 percent as economic growth slows. Japan sold its currency yesterday to stem gains that threaten the nation’s economic recovery.

ICBC, the world’s largest bank by market value, retreated 1.2 percent to 4.11 yuan, the lowest since Dec. 29. China Construction Bank Corp. (939) slid 2 percent to 4.53 yuan, the lowest since Sept. 30.

Valuations Plunge

The Shanghai stocks measure trades at 12 times estimated earnings, the lowest since March 2006. The gauge has slumped 14 percent from this year’s high on April 18 on concern that growth in the world’s second-biggest economy is slowing as the government intensifies measures to stem inflation.

China’s central bank has raised interest rates five times and ordered lenders to set aside more cash as deposit reserves 12 times since the start of 2010 to contain price rises, which quickened to the fastest pace in three years in June. The central bank may raise rates around Aug. 10, Xinhua08.com, Xinhua’s financial services website, said Aug. 1, citing its own research.

China should maintain the strength of monetary policy to consolidate and enhance achievements from previous measures, the Financial News said in a commentary on its second page.

It will be difficult to control consumer price increases to within 5 percent this year, the commentary said. Autumn grain output and hog supply in the country still face lots of uncertainties, according to the commentary by an unidentified writer at the central bank publication. The Financial News is published by the People’s Bank of China.

China’s stocks may perform better than counterparts elsewhere in Asia should the debt crises in Europe and the U.S. worsen, according to Credit Suisse Group AG, which said the nation’s loans from the two regions are of “virtual irrelevance.”

To contact the reporter on this story: Irene Shen in Shanghai at ishen4@bloomberg.net

To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net

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