Bloomberg News

China Stocks Rally Most in Year on Government Support Prospects

October 12, 2011

Oct. 12 (Bloomberg) -- China’s stocks rallied, spurring the biggest gain for the benchmark index in a year, on speculation the government is seeking to bolster the share market after valuations dropped to record low levels.

Haitong Securities Co. led a rally for brokerages after Xinhua News Agency reported regulators approved cross-border exchange-traded funds. China Minsheng Banking Corp. surged the most in seven weeks as banks extended yesterday’s rally after Central Huijin Investment Ltd. began buying shares of lenders. Trainmakers CSR Corp. and China CNR Corp. rose more than 4 percent after the 21st Century Business Herald reported their parent companies may get cash injections from the government.

The Shanghai Composite Index advanced 71 points, or 3 percent, to 2,420 at the close, the most since Oct. 15, 2010. The CSI 300 Index gained 3.6 percent to 2,644.76.

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

The Shanghai Composite has tumbled 14 percent this year, driving down estimated price earnings to 11.2 times, compared with the record low of 10.8 times set on Oct. 10, according to data compiled by Bloomberg. Stocks have fallen after the government raised interest rates and reserve-requirement ratios for banks to cool inflation that’s at the highest level in almost three years.

Inflation probably eased to 6.1 percent in September from 6.2 percent in August, according to the median forecast of economists in a Bloomberg survey. The data are scheduled to be released Oct. 14. Consumer prices rose 6.5 percent in July.

Cross-Border ETFs

A gauge of financial companies in the CSI 300 surged 4.5 percent, the most among the 10 industry groups.

Haitong Securities surged 0.81 yuan to 8.87 yuan, the biggest percentage gain since December 2008. Citic Securities Co., the nation’s biggest listed brokerage, gained 6.2 percent to 11.92 yuan.

The China Securities Regulatory Commission has approved cross-border exchange-traded funds, Xinhua reported, citing an unidentified person. ETFs mimic the performance of an index and trade like stocks. Chinese investors may benefit from the exchanges’ plans to introduce ETFs tracking overseas indexes they currently have limited access to foreign stocks.

Banks Extend Rally

China Minsheng jumped 4.9 percent to 5.76 yuan. Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, extended yesterday’s 1.5 percent gain, adding 1.7 percent to 4.12 yuan. Agricultural Bank of China Ltd. gained 2.4 percent to 2.58 yuan.

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 Agricultural Bank and 3.5 million shares in Bank of China, the four lenders said in statements to the Hong Kong and Shanghai stock exchanges.

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.

“Central Huijin’s move proved to be useful in the past as a short-term stimulus, so it still might work for the banking industry this time,” said Zhang Han, a strategist at Guotai Junan Securities Co.

Train Stocks

CSR rose 5.2 percent to 4.67 yuan, the first increase in six days. China CNR gained 5.2 percent to 4.70 yuan.

CSR and China CNR’s parent companies may each receive 2 billion yuan cash injections from the government provided their listed units complete share sales to raise money this year, 21st Century Business Herald reported today, citing an unidentified person familiar with the matter.

The units applied last month to the State-owned Assets Supervision and Administration Commission for the injection to counter cash shortages caused by tight credit, the newspaper said.

Jiangxi Copper Co. the nation’s biggest copper producer, advanced 3.5 percent to 27.47 yuan. Yunnan Copper Industry Co. climbed 3.2 percent to 18.35 yuan. Copper in London gained as much as 1.2 percent to $7,374 a metric ton, reversing an earlier drop by 1.7 percent.

--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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