Bloomberg News

China’s Stocks Advance, Capping Biggest Weekly Gain in a Year

October 28, 2011

Oct. 28 (Bloomberg) -- China’s stocks rose, driving the benchmark index to its biggest weekly gain in a year, on speculation the government may ease property curbs and after Europe announced measures to solve the region’s debt crisis.

Poly Real Estate Group Co., China’s second-largest developer by market value, jumped to a one-month high after Beijing Business Today reported deposits for land bidding may be lowered. Coal producer China Shenhua Energy Co. and Jiangxi Copper Co. gained at least 3 percent as commodity prices surged on an improving global economic outlook. PetroChina Co., the biggest oil company, climbed to a two-week high after reporting profit that beat estimates.

“There won’t be any additional tightening measures in the pipeline and the worst for sovereign debt in Europe may be over,” said Wang Zheng, Shanghai-based chief investment officer at Jingxi Investment Management Co., which manages about $120 million. “There’ll be definitely a final solution to the debt problem, which will be welcomed by the market.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed 37.80 points, or 1.6 percent, to 2,473.41 at the close. The gauge advanced 6.7 percent this week, the biggest gain since the period ended Oct. 15, 2010, after Premier Wen Jiabao said the government will fine-tune economic policies at an “appropriate time.” The CSI 300 Index rose 1.9 percent to 2,709.02.

October Performance

Even with this week’s rally, the Shanghai Composite is headed for its worst October performance in six years, excluding the 2008 global financial crisis. The measure has gained 4.8 percent this month, trimming the 2011 loss to 12 percent, 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.

The Shanghai Composite is valued at 11.5 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

China’s policy “fine-tuning” has supported a rebound in the nation’s stocks and further “catalysts” may be possible, laying a “solid footing” for a year-end rally, Citigroup Inc. said.

Liquidity conditions have probably “bottomed” in the near term and the slowing in producer and consumer price inflation may help to support earnings, Citigroup analyst Minggao Shen wrote in a report today. Europe’s plan to stem the region’s sovereign-debt crisis will also “comfort” the market temporarily, Shen wrote. Losses in the Hang Seng China Enterprises Index and the Shanghai Stock Exchange A Share Index could be recovered with a year-end rally, Citigroup said.

Lower Bidding Deposits

A measure of 34 property stocks jumped 3.5 percent, the most since Aug. 25. Poly Real Estate rose 4.4 percent to 10.17 yuan, the highest close since Sept. 21. China Vanke Co., the nation’s biggest listed property developer, gained 3.1 percent to 7.91 yuan. Gemdale Corp. advanced 4.9 percent to 5.14 yuan.

Deposits for bidding on land for residential developments may be lowered to 20 percent, Beijing Business Today reported, without saying where it got the information. Deposits have been as high as 60 percent and payment schedules may be relaxed and land prices may also be lowered if the market is weak, according to the report.

The government will eventually replace home purchase limits with a housing database that will gather information from banks and tax offices, Jiang Weixin, Minister of Housing and Urban- Rural Development, said yesterday.

“The answer denies house purchase restrictions are irreversible and will be in place unconditionally for a long term,” Chen Cong, an analyst at Citic Securities Co., wrote in a report today.

European Bailout

Asian stocks and commodities rallied after the U.S. economy grew in the third quarter as gains in consumer spending and business investment helped support a recovery on the brink of faltering. European leaders talked bondholders into accepting 50 percent writedowns on Greek debt and boosted their rescue fund’s capacity to 1 trillion euros ($1.4 trillion) in a crisis- fighting package intended to shield the euro area.

Shenhua, the nation’s largest coal producer, added 3.1 percent to 27.21 yuan. Jiangxi Copper, the nation’s biggest producer of the metal, climbed 3.2 percent to 28.44 yuan. Aluminum Corp. of China Ltd., the listed unit of nation’s biggest maker of the lightweight metal and also called Chalco, gained 1.4 percent to 8.48 yuan.

The London Metal Exchange Index of prices for six industrial metals including copper and aluminum rose 4.8 percent yesterday, gaining for a second day. Crude oil advanced 4.2 percent in New York yesterday.

Inflation Eases

“The market sentiment is getting better and investors are not that pessimistic as they were a couple of weeks ago,” said Zhang Qi, an analyst at Haitong Securities Co. in Shanghai. “We’ll see some real actions from the government to ease tightening policies as inflation slows.”

China’s inflation rate may ease to 5.6 percent this month as gains in food prices slow, Meng Xiangjuan and Li Huiyong, analysts at Shenyin & Wanguo Securities Co., wrote in a report today. The government is unlikely to further tighten policies as growth and inflation ease, it said. Consumer prices rose 6.1 percent last month after gaining at the fast pace in three years of 6.5 percent in July.

PetroChina added 0.9 percent to 9.98 yuan. Third-quarter net income rose 7.8 percent to 37.4 billion yuan ($5.9 billion), surpassing the 33.3 billion-yuan mean estimate of six analysts surveyed by Bloomberg.

The 640 companies that have already reported third-quarter profits out of the 917 in the Shanghai Composite posted a 23 percent earnings increase in the period on average, trailing analysts’ estimates by 4.2 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: Matthew Oakley, Allen Wan

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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