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iShares FTSE China 25 Index Fund
China’s stocks rose, driving the benchmark index to its biggest gain in eight months, as a government plan to build more roads fueled speculation policy makers will introduce more economic stimulus measures.
Sany Heavy Industry Co. (600031), the nation’s biggest machinery maker, jumped the most since February 2009 and Anhui Conch Cement (600585) Co., the country’s largest cement maker, had its biggest surge since July 2010 on optimism demand for their products will rise. SAIC Motor Corp. (600104), China’s biggest carmaker, climbed to a three-week high after sales increased in August.
The Shanghai Composite Index (SHCOMP) closed 3.7 percent higher at 2,127.76, the biggest advance since Jan. 17. The gauge rose 3.9 percent this week, the largest weekly gain since October. The National Development & Reform Commission, China’s top planning agency, said it approved plans to build 2,018 kilometers (1,254 miles) of roads, a day after it backed plans for subway projects in 18 cities.
“The road and railway spending is similar to the large stimulus plan that China had in the last financial crisis,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “It seems the government is rolling out more measures. There’s also speculation of more cuts to the reserve ratio requirement cut this weekend.”
The CSI 300 Index added 4.5 percent to 2,317.18. The Hang Seng China Enterprises Index (HSCEI) of Chinese companies traded in Hong Kong advanced 4 percent. The Bloomberg China-US Equity Index (CH55BN) of the most-traded Chinese shares in the U.S. added 1.8 percent to 87.83 yesterday.
The announcements this week come as the government seeks to bolster growth that eased to the slowest pace in three years in the second quarter. China announced a stimulus package in 2008 worth about $586 billion at the time amid a global crisis that saw 20 million migrant workers lose their jobs. Officials have refrained from easing monetary policy since cutting interest rates in June and July and lowering banks’ reserve requirements three times from November to May.
Hao Hong, Bocom International Holdings Co.’s Hong Kong- based managing director for research, said in an e-mail today that he had turned positive on Chinese stocks on speculation the government will take steps to boost growth. Hong, who was previously cautious on equities, was the only strategist among 13 brokerages surveyed by Bloomberg at the start of the year to forecast declines for Chinese stocks in 2012.
Concern the government isn’t doing enough to prevent a deeper economic slowdown dragged the Shanghai Composite down 2.7 percent in August, the fourth month of declines. That’s the longest streak since the five months through August 2004, according to data compiled by Bloomberg. The gauge has lost 4.4 percent this quarter.
The new investment plans reflect that “Chinese policy makers may consider implementing more fiscal measures to support economic growth,” Alan Lam, a Hong Kong-based analyst at Bank Julius Baer & Co., wrote in an e-mailed note today. The firm has $286 billion in client assets. “The market may be a bit over- worried on the near-term economic outlook and policy uncertainties in China. But the negative market perception on Chinese equities is unlikely to change before policy makers take steps to boost the economy and China’s economic data start to improve.”
China is due to announce August inflation, producer prices, industrial production and retail sales data on Sept. 9 and trade data on Sept. 10.
A gauge of material and industrial shares in the CSI 300 index (SHSZ300) gained at least 5.7 percent. Anhui Conch Cement surged 10 percent to 15.07 yuan, the biggest advance since July 28, 2010. Sany Heavy jumped 10 percent to 9.93 yuan, the biggest increase since February 2009. Taiyuan Heavy Industry Co. (600169) climbed 9.9 percent to 3.12 yuan, the highest close since Aug. 9.
The road projects include highways in Zhejiang and Xinjiang provinces, according to statements posted yesterday on the NDRC’s website. The approvals were given during the June-August period. The agency also cleared plans for nine sewage treatment, two waterway and five port and warehouse projects without disclosing investments.
The central government’s announcements on subways and roads this week mark a round of policy easing that may include reserve ratio requirement cuts and fiscal stimulus, Ting Lu, economist at Bank of America Merrill Lynch, wrote in a note to clients today.
Europe’s three-year sovereign debt crisis has crimped Chinese exports and weakened industrial output. European Central Bank President Mario Draghi said yesterday policy makers agreed to an unlimited bond-purchase program aimed at controlling regional interest rates and strengthening the currency of China’s largest trading partner.
“This exercise by the Europeans should allow a lot of laggard markets, particularly the BRICs, to stage a medium-term recovery,” Christopher Palmer, who helps manage $2.5 billion of assets as the director of global emerging markets for Henderson Global Investors Ltd., said by phone yesterday from London. “We know growth has slowed in China but this will help bolster their manufacturers and exporters that have been hurt by Europe’s problems.”
Global investors are losing faith in China, giving the country’s markets their worst rating in more than two years in the latest Bloomberg poll. About a quarter of those surveyed say they expect Chinese markets to be among the worst performers over the next year.
That’s the highest negative reading the country has received in the quarterly Bloomberg Global Poll since January 2010 and was second only to the 45 percent rating the European Union received in the Sept. 4 survey.
The Shanghai Composite trades at 9.7 times estimated profit, according to weekly data compiled by Bloomberg. The measure’s 30-day volatility reading was at 12.2, compared with this year’s average of 17. About 5.6 billion shares changed hands in the gauge yesterday, about 28 percent lower than the daily average this year.
SAIC Motor gained 3.7 percent to 12.36 yuan, the highest close since Aug. 14. August vehicle sales rose 9.2 percent from a year earlier, according to a statement to Shanghai’s stock exchange. Faw Car Co. (000800) climbed 6 percent to 7.58 yuan, the biggest jump since July 17. Beiqi Foton Motor Co. increased 5.2 percent to 6.33 yuan.
The iShares FTSE China 25 Index Fund (FXI), the biggest Chinese exchange-traded fund in the U.S., gained 1.7 percent yesterday, the steepest rally in a month. The Standard & Poor’s 500 Index (SPX) surged 2 percent to the highest level since January 2008. Data showed yesterday service industries in the U.S. expanded in August at a faster pace than forecast and claims for unemployment benefits fell to the lowest level in a month.
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