Nov. 15 (Bloomberg) -- Most Chinese stocks rose as speculation that easing inflation will allow policymakers to loosen monetary policies overshadowed concern the European debt crisis will hurt Chinese exports.
Huaneng Power International Inc. led a rally for power producers after 21st Century Business Herald reported the nation’s cabinet is reviewing a plan to increase electricity prices paid to power plants. China Shenhua Energy Co. gained 1 percent after the largest coal producer said production rose 19 percent in October. China Minsheng Banking Corp. paced declines for financial companies after the International Monetary Fund called for China to expand oversight of banks as risks increase from off-balance sheet lending and a surge in property prices.
“The one bright side is that inflation is easing in China and there’s room for the government to loosen policy,” said Wu Kan, a fund manager at Dazhong Insurance Co., which oversees $285 million. “Investors are constantly reminded about the debt crisis in Europe with new developments every day and they are also concerned about a possible slowdown in growth.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 1 point, or less than 0.1 percent, to 2,529.76 at the close, after changing directions at least 13 times. About two shares gained for every one that declined. The CSI 300 Index slid 0.2 percent to 2,744.68. The Bloomberg China- US 55 Index fell 0.5 percent to 102.17 at the close of trading in New York yesterday.
The Shanghai Composite has dropped 9.9 percent this year after the central bank raised interest rates three times and lifted the reserve-requirement ratio to curb inflation. The index is valued at 11.9 times estimated earnings, compared with a record low of 10.8 times on Oct. 21, according to weekly data compiled by Bloomberg.
A gauge of utilities in the CSI 300 advanced 1.2 percent, the most among the 10 industry groups. Huaneng, China’s biggest power producer, climbed 1.4 percent to 5.15 yuan. Shanghai Electric Power Co. added 2.3 percent to 5.45 yuan.
The proposal to raise so-called on-grid tariffs was submitted for approval by the State Council, 21st Century Business Herald said today, citing unidentified people. Retail power prices for commercial users may also be adjusted, it said.
China should raise electricity prices while inflationary pressure is easing, the China Daily cited Jiang Kejun, a researcher with the Energy Research Institute of the National Development and Reform Commission, as saying. There will be “severe” discrepancy between coal and power prices with power shortages this winter, Jiang said, according to the newspaper.
China Shenhua Energy Co., the biggest coal producer, advanced 1 percent to 28.44 yuan after it said commercial coal production rose 19 percent from a year earlier to 23.4 million tons in October.
China’s consumer price gains slowed to 5.5 percent in October from a three-year high of 6.5 percent in July, giving the government greater scope to unwind monetary tightening as Europe’s debt crisis hurt exports.
“Inflation is probably going to fall going forward and we hope for a soft landing in growth,” Jonathan Garner, Morgan Stanley’s chief emerging-market and Asia strategist, said in an interview from Singapore. “We should be in a better environment for the stock market.”
Morgan Stanley forecasts a 39 percent gain for emerging- market stocks by the end of next year and joined UBS AG in favoring Chinese stocks, bolstered by confidence the government will loosen monetary policies to support Asia’s biggest economy.
“We expect a soft landing in China and earnings growth should hold up very well in this environment, we think the market is too cheap,” said Hong Kong-based Garner, whose Asian research team was second-ranked by Institutional Investor magazine this year. China may cut interest rates in the first half of 2012, he said.
A gauge of banks and developers in the CSI 300 slid 0.8 percent. Minsheng Banking lost 1.3 percent to 6.03 yuan. Huaxia Bank Co., partly owned by Deutsche Bank AG, dropped 1.2 percent to 10.90 yuan. China Vanke Co., the nation’s biggest developer, declined 1.1 percent to 7.55 yuan.
While a stress test of 17 major commercial banks showed they were resilient to isolated shocks, such as a real-estate slump or a shift in short-term versus long-term interest rates, a combination of blows at the same time would leave the system “severely impacted,” the IMF said.
Jiangxi Copper Co., the nation’s biggest producer of the metal, slid 0.9 percent to 28.02 yuan. PetroChina Co., the largest energy producer, declined 0.6 percent to 10.12 yuan.
The MSCI Asia Pacific Index fell as much as 1 percent today after the yield on the Italian five-year bond rose following an auction and Spanish 10-year rates surged to a euro-era record above German yields. German Finance Minister Wolfgang Schaeuble also said Europe’s permanent bailout fund may not be implemented before 2013. German Chancellor Angela Merkel’s Christian Democratic Union party voted to offer euro states a “voluntary” means of leaving the currency area.
China Railway Construction dropped 1.2 percent to 4.83 yuan. China Railway Group Ltd. lost 0.3 percent to 3.16 yuan.
The nation’s spending on railway construction in the first 10 months fell 28 percent from the same period a year ago to 367.4 billion yuan ($58 billion), according to a statement on the Ministry of Railways website today.
-- Editors: Allen Wan, Ravil Shirodkar
To contact Bloomberg News staff for this story: Weiyi Lim in Singapore at email@example.com
To contact the editor responsible for this story: Darren Boey at firstname.lastname@example.org