Bloomberg News

China’s Stocks Rise, Post Best January Since 2009; Huaneng Gains

January 31, 2012

Jan. 31 (Bloomberg) -- China’s stocks rose, driving the benchmark index to its best January performance since 2009, as Greece made progress in debt-swap talks and on speculation the government will encourage pension funds to invest in equities.

Huaneng Power International Inc., the listed unit of China’s largest electricity producer, rose 2.4 percent on prospects a cap on coal prices will bolster earnings this year. Sany Heavy Industry Co. climbed 1.6 percent after the company said it will buy a majority stake in a German machinery maker. Angang Steel Co. slid the most in two months after the steelmaker estimated a loss for 2011.

“The hope lies in government support measures such as encouraging more local pensions to invest in stocks and the market believes these measures will materialize soon,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “Corporate earnings are slowing but most of this looks like they are being priced into equities now.”

The Shanghai Composite Index rose 7.57 points, or 0.3 percent, to 2,292.61 at the close, erasing a 0.4 percent loss. The CSI 300 Index added 0.1 percent to 2,464.26. The Bloomberg China-US 55 Index, the measure of the most-traded U.S.-listed Chinese companies, retreated 1.5 percent yesterday in New York.

The Shanghai Composite climbed 4.2 percent in January on speculation slowing growth will prompt the central bank to relax monetary policies and the government will take measures to support stocks.

The index fell 22 percent last year after the People’s Bank of China raised interest rates three times and reserve ratios six times to cool inflation that accelerated to its fastest pace in three years in July. It trades at 9.4 times estimated earnings, near the record low of 8.9 times reached on Jan. 6, according to weekly data compiled by Bloomberg.

Pension Funds

Greek Prime Minister Lucas Papademos told reporters in Brussels today after a European Union summit he’s “strongly committed” to reaching a debt-swap accord with bondholders that is crucial to lowering Greece’s debt burden and freeing up another round of aid before the country faces a 14.5 billion- euro ($19 billion) bond payment on March 20. The European Union is China’s largest export market.

China may announce methods for local pensions to invest in the stock market as soon as the first quarter, the Securities Times reported today, citing an unidentified person. As much as 30 percent of pension assets, or about 580 billion yuan ($91.6 billion), may be allowed for stock investment, according to the newspaper, which is operated by the People’s Daily.

Huaneng Power advanced 2.4 percent to 5.50 yuan even after the electricity supplier said profit probably slumped more than 50 percent last year. Analysts including China Merchants Securities Ltd.’s Peng Quangang and Ping An Securities Ltd.’s Wang Fan said Huaneng’s earnings projection was in line with their forecasts.

‘Pretty Optimistic’

“We are pretty optimistic about their performance this year given the government cap on coal prices and increase of electricity tariff,” China Merchants Securities’s Peng, who recommends buying the stock, said by telephone from Beijing.

To help limit losses at power utilities, the central government capped spot coal prices at northern Chinese ports at 800 yuan a ton from the start of this year. The nation also raised electricity prices nationwide in December.

Datang International Power Generation Co., a unit of China’s second-biggest electricity producer, gained 1.8 percent to 5.20 yuan. Huadian Power International Corp., the listed unit of the fourth largest, rose 2.2 percent to 3.32 yuan.

Sany Heavy, the biggest Chinese machinery maker, gained 1.6 percent to 14.21 yuan. The construction-equipment maker run by China’s richest man and a partner will pay 360 million euros for German concrete-pump maker Putzmeister Holding GmbH to add technology and expand abroad.

Profit Growth Slows

Listed companies have started to announce annual earnings reports and will finish before the end of April. Forty-five companies in the Shanghai Composite have released annual profits so far, gaining 19 percent on average and trailing analyst estimates by 3.2 percent, according to data compiled by Bloomberg. That compared with an increase of 38 percent in the previous year.

China’s tight monetary policies and cost increases are hurting corporate profits, according to UBS AG. Corporate profit growth will be about 15 percent in 2011, compared with analysts’ forecasts for about 20 percent, Gao Ting, chief China strategist at UBS, said in an interview at Bloomberg’s offices in Shanghai.

“The market’s estimates are still too high,” Gao said. For non-financial companies, fourth-quarter earnings may drop between 5 and 10 percent from the previous year, while first- quarter profit may decline 10 percent on average, he said.

Steelmakers Retreat

Angang slumped 4.4 percent to 4.58 yuan, its biggest slide since Nov. 30. The steelmaker probably had a net loss of 2.15 billion yuan last year because of higher costs and lower product prices, compared with a profit of 2.05 billion yuan in 2010.

Maanshan Iron & Steel Co., China’s fourth-largest listed steelmaker, lost 0.8 percent to 2.56 yuan. Nanjing Iron & Steel Co. dropped 1.7 percent to 2.87 yuan. Both companies said net income for 2011 may have plunged by more than 50 percent.

The China Federation of Logistics and Purchasing is due to release a manufacturing index for this month tomorrow. The gauge may fall to 49.6 from 50.3 in December, according to the median estimate of 17 economists in a survey by Bloomberg News. The number of 50 is the dividing line between expansion and contraction.

--Zhang Shidong. With assistance from Winnie Zhu in Shanghai. Editors: Allen Wan, Matthew Oakley

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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