Bloomberg News

China’s Stocks Rally for First Time in Week on Factory Outlook

October 24, 2011

Oct. 24 (Bloomberg) -- China’s stocks rallied for the first time in five days after a report showed the nation’s manufacturing may expand for the first time in four months and on easing concerns over the European debt crisis.

China Minsheng Banking Corp. and China Citic Bank Corp. led gains for lenders as Barclays Plc forecast “strong” third- quarter industry profit growth and European leaders outlined plans to aid banks. Jiangxi Copper Co. and coal producer China Shenhua Energy Co. climbed at least 3.3 percent after a preliminary index of purchasing managers signaled expansion.

“The preliminary manufacturing data and positive progress in tackling the European debt crisis have eased concerns about a severe growth slowdown and recouped some confidence,” said Dai Ming, fund manager at Shanghai Kingsun Investment Management & Consulting Co.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 53.06 points, or 2.3 percent, to 2,370.33 at the 3 p.m. close, the biggest gain since Oct. 12 and rebounding from its lowest close since March 2009. The CSI 300 Index climbed 2.7 percent to 2,576.67.

The Shanghai Composite slumped 4.7 percent last week, the biggest weekly loss in five months, after the statistics bureau said the nation’s economy grew at the slowest pace in two years in the third quarter.

The preliminary manufacturing index, known as the Flash PMI, was at 51.1, HSBC Holdings Plc and Markit Economics said today. It was the highest in five months and compares with the final reading of 49.9 for September and August. A reading above 50 indicates expansion.

Flash PMI

Output advanced at a faster rate and new orders and export demand expanded after contracting the previous month, today’s release indicated. The input prices sub-index rose at a slower rate, while the output price gauge accelerated.

Jiangxi Copper, China’s biggest producer of the metal, gained 4.1 percent to 25.98 yuan. Shenhua, the nation’s largest coal producer, rose 3.3 percent to 25.35 yuan. PetroChina Co., the nation’s biggest oil company, added 1.9 percent to 9.83 yuan.

European leaders meeting in Brussels at the weekend excluded a forced restructuring of Greece’s debt, sticking with the policy of enticing bondholders to accept “voluntary” losses to help restore the country’s finances. The complete blueprint will be formed Oct. 26.

“Work is going well on the banks, and on the fund and the possibilities of using the fund, the options are converging,” French President Nicolas Sarkozy told reporters at the Brussels summit yesterday. “On the question of Greece, things are moving along. We’re not there yet.”

Banks Rally

Minsheng Banking, the nation’s first privately owned bank, gained 2.4 percent to 5.98 yuan. Citic Bank, the banking unit of the nation’s largest investment company, surged 2.6 percent to 4.35 yuan. Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., added 3 percent to 9.16 yuan. China Merchants Bank Co. rose 3.4 percent to 12.05 yuan.

Hong Kong-listed Chinese lenders may post 32 percent profit growth on average in the third quarter, led by Minsheng Banking, Agricultural Bank of China Ltd. and China Citic Bank, according to Barclays Plc. Banks will start reporting results from tomorrow.

“We believe the current share prices may reflect too bearish a scenario for asset quality deterioration,” said Barclays analysts May Yan and Shujin Chen in a report today. “Negative news flow may have peaked.”

China will allow for a higher bad-loan ratio for small- company loans and provide more support for small companies, Zhou Mubing, vice chairman of the China Banking Regulatory Commission, said today.

Brokers Gain

Haitong Securities Co. led a rally for brokerages after the Securities Times reported the government has set up a company in charge of short-selling and margin trading.

Haitong jumped 6.7 percent to 9.10 yuan. Citic Securities Co., the biggest-listed brokerage, surged 4.5 percent to 11.79 yuan.

The company got approval from the government on Oct. 19 and has held its first board meeting, the newspaper said on Oct. 22, citing an unidentified insider. The move signals a step forward towards allowing brokerages to do short-selling and margin trading, the newspaper said.

The Shanghai Composite has slumped 16 percent this year after the central bank 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. It’s valued at 11 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

Inflation Outlook

Consumer prices in the world’s second-biggest economy increased 6.1 percent in September from a year earlier, the National Bureau of Statistics said last week. Inflation was boosted by food prices.

Prices in China for pork leg meat fell 1.2 percent to 30.99 yuan a kilogram between Oct. 11 and Oct. 20 as compared with the previous ten days, the National Bureau of Statistics said in a statement on its website.

China must continue efforts to control food and housing prices to ease soaring inflation and maintain economic development and social stability, Premier Wen Jiabao said.

Authorities must help boost output of farm products, control the non-food use of corn and increase land supply to make more residential housing available, Wen said in a statement posted on the central government’s website over the weekend.

Yanzhou Coal Mining Co., China’s fourth-biggest coal miner, retreated 1.3 percent to 25.18 yuan, its lowest close since Feb. 9. Net income slumped 70 percent from a year earlier in the third quarter.

“Europe’s progress towards solving the debt crisis will help boost sentiment on the market although there will be lots of twists and turns before the issue is finally addressed,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “A stocks’ rebound will be limited as we face uncertainty such as downward earnings revisions.”

--Zhang Shidong. Editors: Allen Wan, Richard Frost

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at szhang5@bloomberg.net

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


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