Bloomberg News

China’s Stocks Rise Most in 3 Weeks on Government Growth Pledge

August 01, 2012

China’s stocks rose, driving the benchmark index’s biggest gain in three weeks, as a government pledge to ensure stable economic growth overshadowed manufacturing data that missed analysts’ estimates.

Anhui Conch Cement Co. jumped 3.4 percent, leading gains for cement producers, after the China Securities Journal said the nation’s economic planners may allow local governments to sell subway and railway bonds to support infrastructure projects. China Vanke Co., the biggest developer, increased 1.1 percent after a report showed new home prices in the country rose the most since June 2011.

A meeting of the Communist Party’s Politburo determined that maintaining stable growth is still the top priority, the official Xinhua News Agency reported yesterday. A purchasing managers’ index released today showed China’s manufacturing industry grew at the slowest pace in eight months in July.

“Investors’ confidence may be boosted by the government’s pledge for more measures,” said Zhang Yanbin, an analyst at Zheshang Securities Co. in Shanghai. “That should support the market a little. The downward trend hasn’t stopped as economic data is still weak.”

The Shanghai Composite Index (SHCOMP) rebounded from the lowest level since March 2009, gaining 0.9 percent to 2,123.36 at the close, the most since July 6. The index lost 5.5 percent in July on concern slowing exports and property curbs are hurting economic growth. The CSI 300 Index (SHSZ300) advanced 1.1 percent to 2,358.65 today. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, fell 0.2 percent in New York yesterday, taking its July slump to 4.9 percent.

Downward Pressure

Premier Wen Jiabao said downward pressure on the economy is “relatively large” and pledged to use different monetary policy tools to ensure stable growth in money supply and bank credit, the official Xinhua News Agency reported yesterday, citing a speech on July 26. The government will “unswervingly” implement property controls and prevent home prices from rebounding, according to the report.

Anhui Conch advanced 3.4 percent to 14.94 yuan. Huaxin Cement Co. surged 6.1 percent to 11.40 yuan. The National Development and Reform Commission may allow local governments to sell subway and railway bonds by private placement to support construction of infrastructure projects, China Securities Journal reported today.

Jiangxi Copper Co., (600362) the nation’s biggest producer of the metal, gained 1.7 percent to 20.38 yuan, the most in two weeks. Tongling Nonferrous Metals Group Co. added 2.2 percent to 17.75 yuan. Southern Copper Corp.’s Financial Planning Manager Raul Jacob said the country’s copper demand may expand as much as 7 percent this year, outpacing supply.

Manufacturing Outlook

China’s manufacturing teetered on the edge of contraction, indicating that stimulus efforts have yet to bear fruit.

The Purchasing Managers’ Index fell to 50.1 in July from 50.2 in June, the National Bureau of Statistics and China Federation of Logistics and Purchasing reported today. That compares with the 50.5 median estimate in a Bloomberg News economist survey. A reading above 50 indicates expansion. A separate PMI released today by HSBC Holdings Plc and Markit Economics rose to 49.3 from 48.2 in June, after a preliminary reading of 49.5 released last week.

“It is clear that the manufacturing sector is doing very poorly and requires policy support,” Dariusz Kowalczyk, a Hong Kong-based senior economist and strategist at Credit Agricole CIB, said in a research note today. The chance of an interest- rate cut is “up to about a third now from a quarter yesterday,” and a reduction in banks’ reserve requirements is “fairly imminent,” he said.

More Easing

Jim O’Neill, chairman of Goldman Sachs Asset Management, said in an interview with Bloomberg Radio from London yesterday that he expects the People’s Bank of China to continue cutting interest rates to shore up the economy. The central bank has lowered borrowing costs twice since early June, reduced banks’ reserve requirements three times since November and sped approvals for investment projects as economic growth weakened.

“The ongoing pace of economic growth is within expectations, but the external environment remains grim and poses difficulties and challenges,” Xinhua said yesterday, citing a Politburo meeting. The Politburo reiterated that China will pursue a “prudent” monetary policy and “proactive” fiscal policy.

Buy Signal

A gauge of property shares in the Shanghai Composite increased 0.3 percent. China Vanke increased 1.1 percent to 9.33 yuan and Gemdale Corp. (600383) gained 0.5 percent to 5.80 yuan.

Home prices rose 0.3 percent from June to 8,717 yuan ($1,369) per square meter (10.76 square feet), SouFun Holdings Ltd., the country’s biggest real estate website owner, said in a statement today, based on a survey of 100 cities. That was the second monthly gain and the biggest increase since June 2011.

Thirty-day volatility on the Shanghai index was at 14.7. About 5.4 billion shares changed hands in the gauge yesterday, 29 percent lower than the average this year.

The Chinese stock market decline has been partially an overreaction to the nation’s slowing economic growth and expectations of lower corporate earnings, Xinhua News Agency reported yesterday, citing an unidentified official at the China Securities Regulatory Commission. The CSRC is encouraging companies to buy back shares, according to the report.

The Shanghai Composite’s 14-day relative strength index, which measures how rapidly an index has risen or fallen in a specified time period, dropped to 29.1 yesterday. Some analysts see a reading of less than 30 as a signal to buy. The Shanghai gauge is valued at 9.6 times estimated profit, compared with its three-year average of 14.7, data compiled by Bloomberg show The Shanghai B-Share Stock Price Index (SHBSHR) advanced 2.1 percent. An 11 percent tumble in the past five days dragged the gauge’s RSI down to 16.9 yesterday.

Everbright Securities Co. dropped 5.5 percent to 12.71 yuan after saying the first-half net income fell 26.6 percent from a year earlier. The stock was the second-biggest drag on the Shanghai Composite today.

To contact the reporter on 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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