Chinese (SHCOMP) stocks rose for a third day after Germany backed the European Central Bank’s bond-buying plan, overshadowing concern China’s slowing economy will lead to declines in corporate profits.
Shanghai Lujiazui Finance & Trade Zone Development surged more than 2 percent after its chairman and six executives bought company shares. Inner Mongolia Baotou Steel Rare-Earth Hi-Tech Co. led gains among rare earth stocks after China National Radio reported the country plans to shut down about a fifth of industry production capacity. China Life Insurance Co. slid 1.9 percent after saying first-half net income fell.
The Shanghai Composite Index added 0.1 percent to 2,157.62 at the close, as three stocks rose for every one that fell. The CSI 300 Index (SHSZ300) climbed 0.1 percent to 2,388.87. The Hang Seng China Enterprises Index of Chinese companies traded in Hong Kong advanced 0.4 percent. The Bloomberg China-US 55 Index (CH55BN), the measure of the most-traded U.S.-listed Chinese companies, climbed 3.1 percent.
“Sentiment towards Europe has improved,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Previously, investors expected the worst for Europe. With a little progress now, people are getting a tad more optimistic.”
The Shanghai Composite has fallen 12 percent from this year’s high on March 2 amid concern the economic slowdown is deepening and Europe’s debt crisis is worsening.
China’s economic growth may slow to 4 percent to 5 percent this year, according to Patrick Chovanec, an associate professor at Tsinghua University.
“I think we are going to see a deepening of this slowdown; this slowdown is driven by the accumulation of bad debt that’s dragging down investment,” he said on Bloomberg Television in Hong Kong. “We’re looking at 4 to 5 percent growth right now despite the official numbers.”
The economy grew 7.6 percent in the second quarter, the slowest pace since 2009. The People’s Bank of China cut interest rates twice since early June and lowered lenders’ reserve requirement ratios three times starting in November as part of the government’s efforts to spur credit growth and support the economic expansion.
Merkel’s government backed the ECB’s bond-buying plan announced last week, her deputy spokesman Georg Streiter said. Spanish and Italian two-year notes climbed for a fourth day yesterday amid speculation the ECB will buy the securities in an attempt to calm euro-region turmoil.
China Cosco Holdings Co., the country’s largest listed shipping company, jumped 1.6 percent to 4.39 yuan. Europe is China’s largest export market, making up 18 percent of the nation’s overseas sales, according to Shenyin & Wanguo Securities Co.
Shanghai Lujiazui Finance & Trade Zone surged 2.6 percent to 11.65 yuan after its chairman and six executives bought a combined 76,300 shares in the company.
The nation’s securities regulator, in the week following a July 31 pledge by the Communist Party’s Politburo to continue adjusting policies to ensure growth, has announced plans to allow companies to buy back shares and use them to pay employees in lieu of wages as well as cut trading fees for stocks. The measures signal intensifying government efforts to bolster equities.
China’s A-share market sentiment dropped to a record low in July, Credit Suisse Group AG said, citing its own survey. The Chinese Whispers A-share Market Sentiment Index was at 18 in July, below the 50 benchmark, Credit Suisse said.
Traders are the most bearish on China’s currency in more than three years, based on the spread between three- and 36- month yuan forwards, as global companies cut back on investment in the world’s second-biggest economy. The rising spread signals traders expect the currency to be about 5 percent weaker against the dollar in three years.
Inner Mongolia Baotou gained 3 percent to 42.72 yuan. New industry rules will apply to China’s 23 rare-earth mines and 99 smelters, according to China National Radio, which cited Jia Yinsong, an official at the raw material division of the Ministry of Industry and Information Technology. Rare-earth smelting companies will be required to have annual capacity of at least 2,000 metric tons, the ministry said in a statement.
Thirty-day volatility in the Shanghai Composite index was at 14.6. About 7.2 billion shares changed hands in the gauge yesterday, 5 percent lower than the average this year. The index is valued at 9.6 times estimated profit, compared with the three-year average of 14.6.
China Life retreated 1.9 percent to 18.51 yuan, the lowest close since July 30. The biggest life insurer estimated first- half net income slid by a “relatively large degree” from the same period last year on lower investment returns and a decline in asset value. Ping An Insurance Group, the second largest, lost 1.5 percent to 43.92 yuan.
Southwest Securities Co. declined 2.6 percent to 10.09 yuan after halting a plan to acquire Guodu Securities Co. because of falling equity prices and lower brokerage earnings.
Chovanec, an adviser and former vice president of the Hong Kong venture capital firm Asia Mezzanine Capital Group, said Chinese corporate earnings growth is slumping.
“Look at all the profit warnings that are coming out,” he said. “A lot of companies are having difficulty growing in this Chinese economy.”
The iShares FTSE China 25 Index Fund (FXI:US), the biggest Chinese exchange-traded fund in the U.S., climbed 0.5 percent to $34.99 yesterday, the highest level since May 11.
-- Editors: Allen Wan, Richard Frost
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