Bloomberg News

China’s Stocks Rise Most in Two Weeks on Policy Speculation

December 17, 2011

Dec. 16 (Bloomberg) -- China’s stocks rebounded, halting a six-day slide for the benchmark index, on speculation the government will lower lenders’ reserve-requirement ratios and ease credit curbs to prevent the economy from slowing further.

China Vanke Co. and Huaxia Bank Co. rallied more than 3 percent after the Securities Times reported banks in major cities are offering lower mortgage rates for first-time home buyers. Jiangxi Copper Co. led gains for materials companies as U.S. economic data bolstered the outlook for commodities demand. New China Life Insurance Co., the third-biggest life insurer, jumped 13 percent in its debut. Stocks rebounded in the last 45 minutes of trading after fluctuating for most of the day.

“Investors speculate the government may cut the reserve required ratio again in the near term to boost the economy,” said Zhang Yanbin, an analyst with Zheshang Securities Co.

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, climbed 44 points, or 2 percent, to 2,224.84 at the close, the biggest gain in two weeks. The CSI 300 Index added 2.1 percent to 2,386.89. The Bloomberg China-US 55 Index of the most-traded Chinese stocks lost 1.3 percent yesterday.

The Shanghai Composite slid 3.9 percent this week after reports showed growth in the world’s second-biggest economy is decelerating. Foreign direct investment dropped for the first time since 2009, while manufacturing may contract for a second month. The Conference Board’s leading index for China, which captures prospects over the next six months, fell in October, while lending slowed in November and money supply grew the least in a decade.

Financials Rally

The Shanghai index has tumbled 21 percent in 2011, exceeding last year’s 14 percent decline, as shipments to Europe, China’s biggest export market, slowed because of the region’s debt crisis and the government raised interest rates to curb inflation.

China Vanke, the biggest Chinese developer, gained 3.1 percent to 7.43 yuan today. Rival Poly Real Estate jumped 5.3 percent 9.98 yuan. Huaxia Bank, partly owned by Deutsche Bank, climbed 4.8 percent to 11.26 yuan.

Banks in Shenzhen are joining peers in Beijing and Shanghai in offering lower rates amid loosened credit, the Securities Times reported.

The central bank will lower lenders’ reserve-requirement ratios once more this year and five times in 2012, Li Wei and Stephen Green, economists at Standard Chartered Plc., wrote in a note to clients yesterday. China announced on Nov. 30 that it will reduce the amount of cash banks must set aside as reserves for the first time since 2008 as Europe’s debt crisis threatens exports and growth.

Export Outlook

Jiangxi Copper increased 2.8 percent to 22.04 yuan. Yanzhou Coal Mining advanced 3.6 percent to 21.75 yuan, narrowing this week’s drop to 13 percent.

In the U.S, reports showed manufacturing in the New York and Philadelphia regions expanded more than forecast in December. The Federal Reserve Bank of New York’s general economic index accelerated to the highest level in seven months, to 9.5 from 0.6 in November.

Commerce Minister Chen Deming said yesterday he is “not too optimistic” about exports next year. Overseas shipments climbed 13.8 percent in November from a year earlier, the customs bureau said last week, the least since export growth resumed in December 2009. Exports to the European Union rose 5 percent from a year earlier, a quarter of the pace reported in July and August.

New China Life surged 14 percent to 26.44 yuan. The company, whose shares plunged 9.8 percent in its Hong Kong debut yesterday, is raising more equity after its expansion in a market that has grown an average 30 percent a year during the past three decades brought its solvency ratio, a gauge of its ability to settle claims, below regulatory requirements.

‘Bargain-Hunting’

“People are just bargain hunting since it sold at a bottom of a range,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “There’s nothing fundamentally better about the company compared to the other insurers. There’s always an element of speculation in A shares.”

Chinese stocks will “struggle” in 2012 as the government is unlikely to loosen monetary policy ‘aggressively,’’ said China International Capital Corp. Investors should stay “defensive” on equities as stocks will have difficulty gaining in an environment where economic growth is slowing, Hao Hong, CICC’s Beijing-based global equity strategist, wrote in a report today.

The yuan strengthened as much as 0.7 percent against the dollar today, the most since a dollar peg ended in July 2005. The central bank raised its daily reference rate by 0.1 percent to 6.3352.

“The fixing was firmer and at market open there was solid dollar offer interest, in particular by Chinese banks,” said Dariusz Kowalczyk, Hong Kong-based senior strategist at Credit Agricole CIB. “Improved sentiment in global markets is helping as is news that China is easing curbs in the property sector which will limit downside risks to growth.”

-- Editors: Allen Wan, Richard Frost

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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