Bloomberg News

China Stocks Rise for First Time in Three Days on Inflation Data

November 09, 2011

Nov. 9 (Bloomberg) -- China’s stocks rose for the first time in three days after the country’s inflation cooled to the slowest pace in five months, giving policy makers more room to support economic growth.

Industrial & Commercial Bank of China Ltd. led gains for lenders as the statistics bureau said consumer prices rose 5.5 percent in October from a year earlier. PetroChina Co. and Jiangxi Copper Co. paced gains by commodity producers after oil and metal prices climbed.

“This is the third month of CPI easing, so investors are now more assured that the trend will continue for the rest of the year,” said Larry Wan, Beijing-based head of investment at Union Life Asset Management Co., which manages the equivalent of $2.2 billion. “We are now also confident there will be easing by the government. The only disagreement among investors is the magnitude of easing.”

The Shanghai Composite Index rose 21.08 points, or 0.8 percent, to 2,524.92 at 3 p.m. local-time close, erasing an earlier 0.6 percent decline. The CSI 300 Index added 0.9 percent to 2,751.65.

ICBC, the nation’s biggest lender, gained 0.7 percent to 4.36 yuan. China Life Insurance Co. rose 2.8 percent to 18.19 yuan.

The 5.5 percent increase in consumer prices matched the median forecast in a Bloomberg News survey and compared with a 6.1 percent gain in September. Producer prices rose 5 percent last month, less than any of 24 analysts forecast.

Industrial production in the world’s second-largest economy increased 13.2 percent in October, compared with 13.8 percent in September and the 13.4 percent estimate in a Bloomberg survey of analysts.

Developers, Cement

Jiangxi Copper rose 1.5 percent to 28.32 yuan. PetroChina increased 0.6 percent to 10.19 yuan.

Crude oil for December delivery gained as much as 52 cents to $97.32 a barrel in New York. Copper for three-month delivery rallied as much as 2.1 percent to $7,959.75 a metric ton on the London Metals Exchange. Nickel added 1.1 percent and tin climbed 0.9 percent.

Beijing Capital Development Co. lost 1.7 percent to 8.15 yuan and Poly Real Estate Group Ltd. declined 0.2 percent to 9.83 yuan.

Housing prices will fall after China’s two-year effort to regulate private construction and increase the building of welfare housing, Premier Wen Jiabao said in a Xinhua News Agency report. Barclays Capital estimates home prices may decrease by 10 percent to 30 percent in the next year.

Monetary Policy

Inflation “is not low enough for the government to change its stand on the property sector or even monetary policy,” Jinsong Du, a Hong Kong-based analyst analyst at Credit Suisse Group AG, said on Bloomberg Television in Hong Kong. “For the longer term, property prices will still come down.”

Fixed-asset investment excluding rural households increased 24.9 percent in the first ten months of the year from a year earlier, according to the statistics bureau. That compares with the 24.8 percent median estimate in a Bloomberg News economist survey. Retail sales increased 17.2 percent in October from a year earlier, the bureau said, less than the 17.6 percent median estimate in a Bloomberg News survey and a 17.7 percent gain the previous month.

Stock Valuations

The Shanghai Composite has fallen 10 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation that’s near a three-year high. The index is valued at 11.8 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.

China missed earnings estimates by the most in Asia excluding Japan for the current quarter, according to Citigroup Inc. Chinese companies reported aggregated negative surprises of minus $2.88 billion, the brokerage said in a report today.

The Hang Seng China Enterprises Index of Chinese stocks traded in Hong Kong may gain no more than 5-10 percent this year from current levels, BNP Paribas said.

“We are still seeing the legacy of massive stimulus efforts in 2009 eroding the financial health of businesses across the board,” Dorris Chen and Kathryn Ding, analysts at BNP, wrote in a report dated today. “This suggests that the fourth quarter and first quarter will continue to see earnings growth deceleration and consensus earnings-per-share cuts, which counteracts the government’s selective easing.”

-- Editors: Richard Frost, Allen Wan

To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at wlim26@bloomberg.net To contact the editor responsible for this story: Darren Boey at dboey@bloomberg.net


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