Bloomberg News

China Stocks Rise, Extending Last Week’s Rally; Moutai Jumps

October 17, 2011

Oct. 17 (Bloomberg) -- China’s stocks rose, extending week’s rally, as European debt concerns receded and consumer staples producers rallied on speculation their earnings can better withstand the nation’s tighter monetary policies.

China Shenhua Energy Co., the biggest coal producer in the country, climbed to the highest level this month after September sales jumped. Ping An Insurance Group Co., China’s second- largest insurer, surged to a three-week high after the company reported a 32 percent gain in premium income. Kweichow Moutai Co., the biggest maker of baijiu liquor, rose 3 percent after UBS AG recommended consumer staples producers.

“The Euro debt problem is easing to some extent and Chinese inflation may keep dropping in October,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Monetary policy will probably become easier as the government shifts to maintaining economic growth from controlling rising prices.”

The Shanghai Composite Index gained 9 points, or 0.4 percent, to 2,440.40 at the close, extending a 3.1 percent advance from last week. The CSI 300 Index added 0.5 percent to 2,666.95. Stock markets advanced across Asia today after Group of 20 finance chiefs meeting in Paris endorsed parts of a plan to contain Europe’s debt crisis.

The Shanghai index has tumbled 13 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. China has raised interest rates three times in 2011 and ordered lenders to set aside a bigger portion of their deposits to curb inflation that’s near a three- year high.

Consumer Staples

A gauge of consumer staples producers in the CSI 300 surged 1.9 percent, the most among the 10 industry groups. Moutai advanced 3 percent to 197.15 yuan. Wuliangye Yibin Co., the second-biggest baijiu maker, climbed 2.7 percent to 36.95 yuan Gao Ting, chief China strategist at UBS, recommended investors buy so-called defensive shares including consumer staples producers as a hedge against tightening measures.

The CSI 300 may rally to 3,300 over the next 12 months, as low valuations lure investors and the government signals the end of monetary tightening, according to Manop Sangiambut, CLSA Asia-Pacific Markets’ head of China A-share research.

“I am on the positive side of Chinese stocks, mainly because of valuations and because we’re at the tail end of tightening policies,” Sangiambut said in an interview in Shanghai today. He favors Chinese brokerages, machinery companies and coal producers.

China Shenhua advanced 1.9 percent to 25.73 yuan, the highest since Sept. 29. Coal sales surged 29 percent to 32.6 million tons last month from a year earlier, the company said in a statement to the Hong Kong stock exchange on Oct. 14 after markets closed.

Economic Data

Ping An rose 2 percent to 37.17 yuan, the highest since Sept. 23. The company’s insurance premium income rose 32 percent to 93.9 billion yuan in the first three quarters of the year from the same period last year.

China’s stocks fell on Oct. 14, paring the biggest weekly gain since August, after a report on inflation signaled the government won’t loosen its tightening policies. The nation’s bank lending last month was the least since 2009, while M2, the broadest measure of money supply, rose 13 percent from a year earlier, the least in almost a decade, according to reports released after the close of markets.

Gross domestic product increased 9.3 percent in the third quarter, from a year earlier, according to the median estimate of 22 economists in a Bloomberg News survey. That would be the ninth straight quarter of expansion above 9 percent and follow a 9.5 percent gain in the previous three months. The data are due in Beijing tomorrow.

Sinohydro IPO

Group of 20 finance ministers and central banks concluded weekend talks in Paris endorsing parts of the emerging plan to avoid a Greek default, bolster banks and curb contagion. They set an Oct. 23 summit of European leaders in Brussels as the deadline for it to be delivered.

Sinohydro Group Ltd.’s shares will start trading in Shanghai tomorrow, according to a statement to the stock exchange yesterday. The initial public offering will probably be the biggest in China this year.

The listing comes as liquidity tightens with small companies in cities such as Wenzhou facing a cash crunch.

Wenzhou in eastern China’s Zhejiang province said it will implement measures to “maintain financial order” as it seeks to clamp down on illegal financing and keep executives whose companies are saddled with bad debt from attempting to flee.

The measures include pursuing companies that fail to pay worker salaries and investigating “in a timely manner financial crimes that harm public assets,” the city’s public security bureau said in a statement on its website.

M2 ‘Incomplete’

Chinese stocks will extend recent rallies as inflation may have peaked and excessive pessimism and capitulation may signal a bottom for equity markets, according to China International Capital Corp.

The slumping money supply growth figure is an “incomplete measure” given the “continued disintermediation” of the banking system, Hao Hong, CICC’s Beijing-based global equity strategist, said in a report to clients. “If we include the growth in financial management products, inter-bank deposits, non-financial companies’ reserve deposits, and forex deposits in the calculation of monetary aggregate, money supply growth has indeed been well over 20 percent in recent months.” M2 rose 13 percent last month, the least in almost a decade.

--Allen Wan. Editor: Richard Frost

To contact the reporter on this story: Allen Wan in Shanghai at awan3@bloomberg.net

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


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