Bloomberg News

China's Key Stock Index Gains, Led by Banks on Yuan Hopes

November 23, 2007

China's benchmark stock index rose, paring its third-straight weekly loss.

China Merchants Bank Co. (600036) and China Vanke (000002) Co. led lenders and developers higher on speculation gains in the local currency will boost demand for yuan-denominated assets.

China Southern Airlines Co., the nation's largest carrier, climbed by the 10 percent daily limit after La Tribune newspaper said China plans to order 100 to 150 Airbus SAS passenger jets.

Stocks also rose as concerns eased that the government will introduce further measures to curb asset price gains. The measure has lost 17 percent since its Oct. 16 record close.

``A rising yuan will encourage capital inflows and benefit banks,'' said Lu Xiaofeng, who helps oversee the equivalent of $3.5 billion at SYWG BNP Paribas Asset Management Co. in Shanghai. ``With the stock market now down about 20 percent from its high, the chances of policies to rein in the asset bubble have also declined correspondingly.''

China's CSI 300 Index (SHSZ300), which tracks yuan-denominated shares traded in Shanghai and Shenzhen, gained 83.54, or 1.75 percent, to 4,856.16 at the close in Shanghai, its biggest gain since Nov. 14. The gauge lost 3 percent this week, its third straight weekly decline. About six stocks rose for each that fell on the benchmark today.

The central bank has raised interest rates five times this year and earlier this month ordered lenders to set aside 13.5 percent of their deposits as reserves, the highest proportion since at least 1987. The CSI 300 Index, the world's best- performing stock benchmark this year, has almost tripled in the past year.

Banks Climb

China Merchants Bank, the nation's largest dual-currency credit card issuer, gained 1.00 yuan, or 2.7 percent, to 38.30. Shanghai Pudong Development Bank (600000), the Chinese partner of Citigroup Inc., climbed 1.08 yuan, or 2.3 percent, to 48.

China Minsheng Banking Corp., the nation's first privately owned bank, added 0.38 yuan, or 2.4 percent, to 16.01.

A measure of financial stocks contributed the most to the gain in the benchmark today.

China Vanke, the nation's largest publicly traded property developer, advanced 0.32, or 1 percent, to 31.50. Poly Real Estate Group Co., the No. 2 developer, added 1.36 yuan, or 1.9 percent, to 72.80.

China's yuan rose beyond 7.4 to the dollar for the first time since a link to the U.S. currency was scrapped in 2005. A European delegation arrives in Beijing next week to press for faster appreciation.

Yuan Climbs

The People's Bank of China signaled it wanted the yuan to gain as it set the reference rate for the day's trading at 7.399 from the close of 7.4145 yesterday. Xie Fuzhan, a member of the central bank's monetary policy committee, said yesterday that China's currency is undervalued and increased flexibility is ``essential'' to make economic growth more stable.

China Southern gained 2.13 yuan, or 10 percent, to 23.44. Air China Ltd. (601111), based in Beijing, added 1.41 yuan, or 7.3 percent, to 20.66. China Eastern Airlines Corp., which is selling a stake to Singapore Airlines Ltd., rose 0.86 yuan, or 6.6 percent, to 13.91.

China plans to order 100 to 150 Airbus planes during French President Nicolas Sarkozy's visit to China next week, La Tribune reported today, without saying where it got the information. Chinese carriers are expanding their fleets as economic growth makes holidays and business trips affordable to more people in the world's most populous country.

`Aggressive' Expansion

``China Southern is the most aggressive carrier in terms of expansion,'' said Li Jun, an analyst at Everbright Securities Co. in Shanghai. ``The company, which may leverage more on yuan appreciation as well, will be the best performer next year.''

Elsewhere, China State Shipbuilding Corp. (600150), the country's largest builder of vessels, rose 7.46 yuan, or 3.9 percent, to 200.39, snapping a six-day slide. The company received an order for two container ships valued at $241.1 million from Orient Overseas (International) Ltd., the Hong Kong-based company said in a statement to the city's stock exchange.

To contact the reporter on this story: Chua Kong Ho at in Shanghai or kchua6@bloomberg.net

To contact the editor responsible for this story Nicolas Johnson at nicojohnson@bloomberg.net


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