Bloomberg News

Asian Stocks Advance Amid Speculation Over China’s Stock Buying

October 12, 2011

Oct. 12 (Bloomberg) -- Asian stocks rose, with a regional benchmark index posting its biggest five-day advance since March 2009, amid speculation that China will boost support for the equity market after valuations dropped to record-low levels.

China Minsheng Banking Corp., the nation’s first non-state lender, gained 2.7 percent in Hong Kong. Tencent Holdings Ltd., China’s biggest Internet company by revenue, rose 1.9 percent. Infosys Ltd., India’s second-largest software exporter, surged 7 percent in Mumbai after posting profit that beat analysts’ estimates. Alumina Ltd., an Australian resource company, sank 2.5 percent in Sydney after U.S. partner Alcoa Inc. reported profit that trailed analyst estimates.

The MSCI Asia Pacific Index rose 0.7 percent to 116.57 as of 7:31 p.m. in Tokyo after reversing a loss of as much as 1.3 percent. Chinese stocks listed in Hong Kong advanced, with banks extending yesterday’s rally after Central Huijin Investment Ltd., a state-run investment arm, began buying shares of the top four financial institutions.

“The government’s move fueled speculation that China’s stocks are undervalued,” said Wu Kan, a fund manager at Dazhong Insurance Co. which manages $285 million. “Central Huijin’s move was a flash point, boosting investors’ confidence and buying sentiment.”

Hong Kong’s Hang Seng Index climbed 1 percent, erasing a loss of as much as 1.9 percent. The Hang Seng China Enterprises Index of Chinese companies listed in Hong Kong rose 2.1 percent. South Korea’s Kospi Index increased 0.8 percent.

Shanghai Composite

The Shanghai Composite Index surged 3 percent, the steepest increase in a year. The measure has tumbled 14 percent this year, driving down estimated price earnings to 11 times, compared with the record low of 10.8 times set on Oct. 10, according to data compiled by Bloomberg. Stocks have fallen as the Chinese government raised interest rates and reserve requirement ratios for banks to cool inflation that’s at the highest level in almost three years.

Japan’s Nikkei 225 Stock Average declined for the first time in four days, losing 0.4 percent. Australia’s S&P/ASX 200 Index dropped 0.6 percent, snapping five straight daily advances. New Zealand’s NZX 50 Index fell 2.1 percent.

Futures on the Standard & Poor’s 500 Index gained 1 percent today, erasing losses of as much as 0.7 percent. In New York, the index rose 0.1 percent yesterday, while the Dow Jones Industrial Average retreated 0.2 percent.

China Minsheng gained 2.7 percent to HK$5.31 in Hong Kong. Bank of China Ltd. added 1.5 percent to HK$2.69 and China Construction Bank Corp. increased 2.5 percent to HK$5.24. Tencent rose 1.9 percent to HK$173.30 and Belle International Holdings Ltd., a Chinese retailer of women’s shoes, climbed 1 percent to HK$14.36.

‘Nearing the Floor’

“China’s purchases of banking shares is sending a message to investors that we’re nearing the floor,” said Pauline Dan, Hong Kong-based chief investment officer at Samsung Asset Management, which oversees about $72 billion. “Valuations, particularly for Chinese banks, are certainly cheap.”

The benchmark Stoxx Europe 600 Index slipped 0.3 percent yesterday, ending a four-day rally amid uncertainty that Slovakia will ratify the euro area’s revised bailout fund. Slovakia is the only member of the euro area that hasn’t ratified the action.

European leaders must go beyond a planned recapitalization of banks to resolve the continent’s sovereign-debt crisis, U.S. Treasury Secretary Timothy F. Geithner said in a Bloomberg Television interview yesterday. Geithner will be in Paris on Oct. 13-14 for a meeting of Group of 20 finance ministers.

“Asian stocks remain vulnerable to short-term setbacks, particularly in places like Europe, which could trigger profit taking,” said Nader Naeimi, a Sydney-based strategist for AMP Capital Investors Ltd. “You’ve had some very strong equity gains recently, which means a pause right now wouldn’t be too surprising.”

Estimated Earnings

The MSCI Asia Pacific Index dropped 16 percent this year through yesterday, compared with a 4.9 percent loss by the S&P 500 and a 15 percent decline by the Stoxx 600. Stocks in the Asian benchmark were valued at 11.9 times estimated earnings on average, compared with 12 times for the S&P 500 and 10.1 times for the Stoxx 600.

Infosys climbed 7 percent to 2,679.35 rupees in Mumbai. The company reported second-quarter net income rose 9.8 percent from a year earlier to 19.1 billion rupees ($387 million), exceeding the median estimate of 18.7 billion rupees by 35 analysts in a Bloomberg survey.

‘Lock In Profits’

Alumina sank 2.5 percent to A$1.555 in Sydney. Alcoa, the first company in the Dow to report results, said profit excluding some costs was 14 cents a share last quarter, trailing the 22 cents forecast by analysts surveyed by Bloomberg.

“Less-than-expected earnings from Alcoa will likely move investors to sell exporter shares to lock in profits, as the market had been rising on optimism about U.S. corporate earnings,” said Hiroichi Nishi, an equities manager in Tokyo at SMBC Nikko Securities Inc.

Honda Motor Co., Japan’s second-largest automaker by revenue that gets 40 percent of its revenue from the U.S., fell 2.2 percent to 2,295 yen in Tokyo, pacing declines among Japanese companies that suspended production in Thailand because of floods. Nikon Corp., a maker of cameras, lenses and scanners, dropped 3.5 percent to 1,780 yen.

--Editors: John McCluskey, Jason Clenfield.

To contact the reporter on this story: Shani Raja in Sydney at sraja4@bloomberg.net Jonathan Burgos in Singapore at jburgos4@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net


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