Bloomberg News

China Stocks Rise for 3rd Day as Wen Signals End of Tightening

October 26, 2011

Oct. 26 (Bloomberg) -- China’s stocks rose for a third day after Premier Wen Jiabao said the government will fine-tune its economic policies as needed, boosting speculation the central bank may halt interest-rate increases.

Developers China Vanke Co. and Poly Real Estate Group Co. jumped at least 3.5 percent after Wen said officials will make adjustments at a “suitable time and by an appropriate degree” and Guotai Junan Securities Co. said the central bank may cut borrowing costs. Anhui Conch Cement Co., China’s biggest cement maker, surged to the highest in two months after profit more than doubled.

“The market interprets Wen’s comment as an inflection point for policy changes,” said Zhang Ling, general manager at Shanghai River Fund Management Co. “It’ll definitely provide a boost to stocks. Consumption and new industries may be areas that may have the government’s financial support.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed 17.81 points, or 0.7 percent, to 2,427.48 at the close, capping a three-day, 4.8 percent gain. The CSI 300 Index rose 1 percent to 2,651.65.

The Shanghai Composite has slumped 14 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 11.3 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

The ishares FTSE China 25 Index Fund dropped 1.6 percent to $34.73 in New York, while the Bloomberg China-US 55 Index lost 1.9 percent. China region exchange-traded funds took in $796 million this month, the most since 2009, as interest in Chinese equities has “soared,” according to TrimTabs Investment Research.

Policy Signals

Officials will make adjustments at a “suitable time and by an appropriate degree” and will maintain “reasonable” growth in money supply, Wen said during a visit to Tianjin, according to a statement published late yesterday on the government’s website. The government will continue to make tackling inflation a top priority, Wen said.

China may lower the reserve-requirement ratio for small-and medium-size banks before the year-end and cut interest rates in the second quarter next year after Wen said yesterday the government may fine-tune economic policies, according to Guotai Junan Securities.

The premier’s comments reflect the government’s concern about the slowdown in economic growth, Wang Jin, an analyst at the Shanghai-based brokerage, wrote in a report today. Guotai Junan is China’s top-ranked arranger of domestic corporate bond sales, according to Bloomberg data.

The Ministry of Industry and Information Technology and other government agencies will work to help small businesses facing difficulties, it said in a statement today.

Small-Company Support

A measure tracking 34 property stocks climbed 2.1 percent today, the biggest gain among the Shanghai Composite’s five industry groups. Vanke, the nation’s biggest listed property developer, advanced 3.5 percent to 7.66 yuan. Poly Real Estate, the second largest, added 5.5 percent to 9.79 yuan. China Merchants Property Development Co. gained 2.5 percent to 17.13 yuan.

The government hasn’t raised interest rates since July, after five increases in less than a year to curb price gains that have exceeded the 2011 target every month. The pause since the last rise is the longest since the increases began.

China needs more policies to support small companies and boost the economy to overcome the global economic crisis, Wen said. The government should reinforce price controls and surveillance, and ensure food supply, he said. Inflation eased to 6.1 percent in September from a three-year high of 6.5 percent in July. The economy grew 9.1 percent in the third quarter, the least in nine quarters.

Earnings Outlook

Anhui Conch, China’s biggest cement maker, gained 2.1 percent to 19.56 yuan, its highest close since Sept. 5. Third- quarter net income rose 125 percent from the same period a year ago to 3.1 billion yuan ($488.2 million).

“We see this as a strong set of results given seasonal and weak demand weakness,” Samsung Securities said in a report to clients. The brokerage kept a “buy” rating on the Hong Kong- listed shares, saying that it expects Chinese cement prices to “rise mildly” in the fourth quarter.

Huaxin Cement Co., the Chinese affiliate of Holcim Ltd., rose 2.3 percent to 19.46 yuan. Fujian Cement Inc. surged the 10 percent daily limit to 10.40 yuan.

The 388 companies that have already reported third-quarter profits out of the 917 on the Shanghai Composite posted a 22 percent earnings increase in the period on average, trailing analysts’ estimates by 25 percent, according to data compiled by Bloomberg. That compared with a 26 percent average gain in second-quarter earnings, the data showed.

--Zhang Shidong. Editors: Allen Wan, Shiyin Chen

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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