Bloomberg News

China Stock Futures Rise After Central Huijin Buys Bank Shares

October 10, 2011

Oct. 11 (Bloomberg) -- China’s stock-index futures rose, signaling the benchmark index may rebound from the lowest level in more than two years, after China’s state-run investment arm said it began buying shares of the nation’s four biggest banks.

Futures on the CSI 300 Index expiring in October jumped 2.9 percent to 2,644 as of 9:16 a.m. local time. Industrial & Commercial Bank of China Ltd., China Construction Bank Corp., Agricultural Bank of China Ltd. and Bank of China Ltd. may rally after Central Huijin Investment Ltd. acquired their shares.

“Central Huijin’s move shows the government’s intention to save the market, which is close to a bottom,” said Yang Delong, a fund manager at China Southern Fund Management Co., which oversees $21 billion. “This will help boost companies with record low valuations such as banks and automakers in the short term.”

The Shanghai Composite Index slipped 0.6 percent to 2,344.79 yesterday, the lowest since March 25, 2009. The CSI 300 Index lost 0.9 percent to 2,557.08. The Shanghai Composite has tumbled 17 percent this year as the government raised interest rates and reserve-requirement ratios for banks to cool inflation that’s at the highest level in almost three years. The stock measure is valued at 10.8 times estimated profit, the lowest level on record, according to weekly data compiled by Bloomberg.

Central Huijin will continue with “related market operations,” the unit of China’s sovereign wealth fund said, without providing details on how much it will invest and whether it will buy the shares in Hong Kong or Shanghai.

‘Some Relief’

Central Huijin bought 14.6 million Shanghai-listed A shares in ICBC, 7.38 million yuan-denominated shares of Construction Bank, 39.1 million shares in AgriBank and 3.5 million shares in Bank of China, the four lenders said in separate statements to the Hong Kong and Shanghai stock exchanges.

The announcement will bolster the stock market, according to China International Capital Corp.

“We should expect at least some relief on selling pressure from this move by Huijin, if history is a guide,” Hao Hong, a Beijing-based global equity strategist, said in a report to clients.

The Shanghai Composite jumped 21 percent in a week after the government said it would buy shares of the three largest lenders on Sept. 18, 2008, according to data compiled by Bloomberg. In the aftermath of the collapse of Lehman Brothers Holdings Inc., the government also cut interest rates for the first time in six years, allowed most banks to set aside smaller reserves and scrapped a tax on equity purchases.

Banks’ Performance

The CSI 300 Financials Index has fallen 16 percent this year on speculation that some of the $3.5 trillion in new loans made since the end of 2008 may sour as the world’s fastest- growing economy slows. ICBC, the nation’s biggest lender, has dropped 6 percent this year, extending last year’s 21 percent slide. The stock trades at 6.73 times estimated earnings, compared with the record low of 6.67 set on Sept. 26, according to data compiled by Bloomberg.

PetroChina Co., the nation’s largest oil producer, may drop after the government said it will extend a value-based tax on oil and natural gas sales to the entire nation starting next month to help conserve energy use in the world’s fastest-growing major economy and boost local government revenues.

--Irene Shen. Editors: Allen Wan, Richard Frost

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

To contact the editor responsible for this story: Shiyin Chen at schen37@bloomberg.net


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