Bloomberg News

China Stocks Rise, Paring Index’s Biggest Annual Loss Since 2008

January 01, 2012

Dec. 30 (Bloomberg) -- China’s stocks advanced, trimming the benchmark index’s biggest annual loss since 2008, as increasing U.S. home sales bolstered confidence in the world’s largest economy.

FAW Car Co., which makes passenger cars in China with Volkswagen AG, climbed 4.7 percent after the company received regulatory approve to buy an affiliate’s stake. Jiangxi Copper Co. and zinc producer Zhuzhou Smelter Group Co. paced gains by commodity producers after copper prices increased. Stocks rose even after manufacturing contracted for a second month.

“We have high inflation, an economic slowdown and very tight money supply this year and that’s a picture of stagflation that is pretty negative for equities,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “The stock market may find a bottom next year given cheap valuations. But in terms of economic fundamentals, we haven’t seen an end to the slowdown.”

The Shanghai Composite Index climbed 25.86 points, or 1.2 percent, to 2,199.42 at the close, its biggest gain in two weeks. The CSI 300 Index rose 1.5 percent to 2,345.74. The Bloomberg China-US 55 Index the most-traded U.S.-listed Chinese companies, added 0.8 percent yesterday in New York. China’s markets will be shut until Jan. 4 for holidays.

World’s Worst

The Shanghai Composite tumbled 22 percent this year, the most since 2008 and extending last year’s 14 percent plunge, on concern increases in borrowing costs and Europe’s debt crisis will derail economic growth. The index’s 33 percent drop since 2009 makes it the worst performer among the world’s 15 biggest markets.

HSBC Holdings Plc and Markit Economic said a purchasing managers’ index was at 48.7 in December. That compares with a preliminary result of 49 reported on Dec. 15 and a final reading of 47.7 for November. China’s economic growth will slow to 8.5 percent in 2012, the least in 11 years, according to the Organization for Economic Cooperation and Development.

Stock declines have pushed the Shanghai gauge to trade at a record low of 10.6 times estimated earnings, according to weekly data compiled by Bloomberg. The value of stocks traded in Shanghai slumped yesterday to the weakest level in three years.

The first announced cut in reserve requirement ratios by the central bank since 2008 on Nov. 30 failed to boost stocks, with the Shanghai Composite down 5.7 percent in December. The People’s Bank of China raised interest rates three times and reserve requirement ratios six times this year to cool inflation that accelerated to its fastest pace in three years in July.

Group Movers

All 10 industry groups in the CSI 300 lost more than 9 percent this year, with gauges of industrial companies, materials producers and technology firms sliding more than 35 percent. A measure tracking consumer-staples companies dropped 9.9 percent, the least among the 10 groups.

Commodity producers gained today as better-than-expected U.S. data boosted confidence that a recovery in the second- largest consumer will support demand.

Jiangxi Copper, China’s biggest producer of the metal, added 2.2 percent to 21.93 yuan, paring its loss this year to 51 percent. Tongling Nonferrous Metals Group Co., the second largest, climbed 4.9 percent to 16.81 yuan. Zhuzhou Smelter, China’s biggest producer of refined zinc, rose 3 percent to 9.21 yuan.

Copper for delivery in three months gained as much as 1.4 percent to $7,526.75 a metric ton, paring the first annual decline since 2008. The contract has retreated 22 percent this year, after climbing to a record $10,190 a ton on Feb. 15.

U.S. Boost

The number of Americans filing claims for jobless benefits dropped to 375,000 on average over the past four weeks, the fewest since June 2008, while the U.S. Chicago Purchasing Managers Index and pending sales of existing homes both surpassed the median estimate of economists surveyed by Bloomberg News.

FAW Car gained 4.7 percent to 8.85 yuan. The automaker received approval from China’s state-owned assets regulator to acquire a stake in Tianjin FAW Xiali Automobile Co. from its parent China FAW Group Corp., Xiali said in an exchange statement.

December inflation may have rebounded to 4.4 percent this month as gains in food prices accelerated ahead of the Chinese new year in January, Li Huiyong and Meng Xiangjuan, analysts at Shenyin & Wanguo Securities Co., wrote in a report today. The current slowdown in economic growth isn’t weak enough to prompt the government to increase investment to boost the economy, the report said.

Overseas Funds

The China Securities Regulatory Commission accelerated the pace of approving qualified foreign institutional investors in December, the Shanghai Securities News said today, without saying where it got the information. About 10 overseas institutional investors received approval this month, compared with two in November, and 13 in the first 10 months of the year, according to the newspaper.

Zhejiang King Refrigeration Industry Co., which manufactures air-conditioning equipment, is the best-performing stock in the Shanghai Composite this year with a 195 percent jump, while IRICO Display Devices Co., a producer of television picture tubes, dropped the most with a 66 percent slump.

--Zhang Shidong. Editors: Richard Frost, Darren Boey

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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