Bloomberg News

China’s Stocks Gain, Erasing Losses, on Policy Support

March 13, 2012

China’s stocks rose after Deutsche Bank AG and Nomura Holdings Inc. lifted their estimates for the country’s economic expansion amid speculation the government will act to spur growth.

China Shipping Development Co. (600026) and China Shipping Container Lines Co. paced gains by trade-related companies on expectations the government will halt appreciation in the yuan to bolster exports. PetroChina Co. added 0.9 percent after the National Business Daily said fuel prices may be raised this week. China Shenhua Energy Co. advanced among coal producers on speculation seasonal maintenance of the country’s major rail link will boost prices of the fuel.

“The market needs a catalyst such as a cut to banks’ reserve ratios to extend this year’s gains,” Li Jun, a strategist at Central China Securities Co. in Shanghai, said by phone today. “If we don’t see any new policies, the market will be stuck in this range.”

The Shanghai Composite Index (SHCOMP) gained 20.94 points, or 0.9 percent, to 2,455.80 at the close, erasing an earlier 0.3 percent loss. The CSI 300 Index (SHSZ300) rose 1 percent to 2,681.07. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, added 0.3 percent in New York yesterday.

The Shanghai gauge has climbed 11 percent in 2012 following two years of losses on speculation the central bank will add to a Feb. 18 cut in reserve requirements to halt a slowdown in economic growth. Stocks in the index trade at 10.1 times estimated profit, compared with a record low of 8.9 times on Jan. 6, weekly data compiled by Bloomberg showed.

Growth Targets

Deutsche Bank boosted its forecast for China’s growth this year to 8.6 percent from 8.3 percent while Nomura raised the estimate to 8.2 percent from 7.9 percent.

The broader economy is more insulated from real-estate risk than expected and small businesses saw an improvement in the operating environment in past months, Jun Ma, chief economist at Deutsche Bank, wrote in a note to clients.

The central bank may cut interest rates as soon as this month because a reserve-ratio cut alone would “primarily boost loan supply not loan demand,” Nomura analysts Zhang Zhiwei and Wendy Chen wrote in a note dated yesterday.

The move came even after the government lowered its 2012 economic growth target to 7.5 percent on March 5 from 8 percent over the past seven years.

About 14.6 billion shares changed hands in the Shanghai Composite yesterday, or 21 percent higher than the daily average this year. Thirty-day volatility on the gauge was at 14.77 today, the lowest level since May.

Currency Impact

China Shipping, a unit of China’s second-biggest sea-cargo group, added 1.1 percent to 6.62 yuan. China Shipping Container, the country’s second-largest carrier of sea-cargo boxes, gained 1 percent to 2.96 yuan, rebounding from a three-week low.

The yuan slumped yesterday as officials weakened the reference rate after the government reported the nation’s biggest trade deficit in at least 22 years. Moderating inflation and Europe’s faltering export demand may encourage the government to loosen credit and pause on currency gains, with the yuan down 0.2 percent this year against the dollar after climbing 4.5 percent in 2011.

The yuan traded at 6.3250 per dollar at 3:20 p.m. in Shanghai, compared with 6.3265 yesterday, according to the China Foreign Exchange Trade System. It dropped to the weakest level yesterday since Jan. 31. The currency can move as much as 0.5 percent either side of the daily fixing.

Overseas Investment

Separately, China may double the investment quota under the qualified foreign institutional investor, or QFII, program from the current $30 billion, after the National People’s Congress ends this week, Sina.com reported yesterday, citing market speculation. China may also lower entry requirements for QFII, Sina.com said, without providing details.

The MSCI Asia Pacific Index (MXAP) climbed 0.8 percent today on optimism euro-area finance chiefs will complete a second Greek bailout this week. Euro-area finance ministers gather in Brussels to sign off on a 130 billion-euro ($171 billion) second package for Greece as they focus on Spain’s budget-cutting efforts and Portugal’s aid program.

Luxembourg Prime Minister Jean-Claude Juncker, who heads the group of euro-region finance ministers, said he had “no doubt” that the package would be approved and he expected a final decision on March 14.

PetroChina, the nation’s largest energy company, climbed 0.9 percent to 10.37 yuan. China Petroleum & Chemical Corp. (600028) advanced 0.9 percent to 7.55 yuan.

Energy Prices

Fuel prices may be raised by 400 yuan ($63) to 500 yuan a ton, the National Business Daily reported today, citing Han Jingyuan, an analyst at JYD Online Co., a commodity e-commerce platform.

China, the world’s second-largest oil consumer, boosted net crude imports to a record last month to meet rising demand as farmers prepare for the agricultural planting season and the government adds to emergency stockpiles.

Net purchases from overseas increased to 5.87 million barrels a day last month, according to Bloomberg calculations from data on the website of the Beijing-based General Administration of Customs yesterday.

Shenhua (601088), the nation’s largest coal producer, rose 1.4 percent to 27.15 yuan. China Coal Energy Co., the second largest, added 0.6 percent to 9.64 yuan. Datong Coal Industry Co., the third biggest, advanced 1.2 percent to 14.27 yuan.

The Daqin railway, which carries a third of the nation’s rail deliveries of coal, will shut for maintenance next month, according to the Qinhuangdao Seaborne Coal Market website. The link will be closed for three hours a day for 25 days from April 3 to 27, according to the statement.

“Qinhuangdao price should bottom out soon and Daqin railway maintenance could provide price support,” Citigroup Inc. analysts led by Mark Liinamaa wrote in a report. “Favorable summer demand is approaching.”

--Zhang Shidong. Editors: Richard Frost, 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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