Chinese Stocks Rise After Inflation Data as Financials Advance

Aug 11, 2014 4:54 am ET

Aug. 11 (Bloomberg) -- Chinese stocks rose, sending the mainland’s benchmark index to its biggest gain in a week, amid speculation subdued inflation will give policy makers more scope to ease policy. Financial shares led the advance.

Industrial & Commercial Bank of China Ltd., the nation’s largest lender, climbed at least 1.4 percent in Shanghai and Hong Kong. Haitong Securities Co., the second-biggest listed brokerage, advanced 2.6 percent in Hong Kong. China Vanke Co. rose 1.8 percent on a report Shenzhen was the latest mainland city to loosen property curbs. Henderson Land Development Co. rose 4.8 percent.

The Shanghai Composite Index climbed 1.4 percent to 2,224.65 at the close, while Hong Kong’s Hang Seng China Enterprises Index, also known as the H-share index, jumped 1.9 percent to 11,037.88. Data over the weekend showed consumer prices rose 2.3 percent in July, below the 3.5 percent target for 2014.

“Inflation is low and that should leave the government with more ammunition to support the economy,” said Wang Weijun, a strategist at Zheshang Securities Co. in Shanghai. “The policy front for property stocks is undoubtedly improving and there are some opportunities for the sector. Upcoming economic data will be good and at least they won’t miss market expectations.”

Hong Kong’s benchmark Hang Seng Index gained 1.3 percent to 24,646.02. The CSI 300 Index added 1.5 percent. The Bloomberg China-US Equity Index, the measure of the most-traded U.S.- listed Chinese companies, climbed 1.5 percent on Aug. 8.

Fund Flows

The Shanghai Composite has rebounded 12 percent from this year’s low as monetary easing, accelerated government spending and gains in manufacturing spur speculation the nation will meet its 7.5 percent economic expansion target. Optimism that cross- border trading between Hong Kong and Shanghai will spur inflows has also bolstered equities.

“Confidence that maintaining growth rates is a high priority for China’s government has bolstered investor sentiment towards this market, as has its geographic distance from the Middle East and the Ukraine,” the funds tracker said in an Aug. 9 report. “Investors are also starting to look ahead to the increased liquidity that is expected when the Shanghai-Hong Kong Connect linking those cities’ equity stock exchanges is implemented later this year.”

Pressure is increasing on Hong Kong’s exchange to provide clarity on trading rules before the link starts with Shanghai. Investors won’t be able to sell Shanghai shares through an exchange link with Hong Kong unless they transfer the stock to a broker before trading starts that day to meet mainland trading rules, according to Hong Kong Exchanges & Clearing Ltd.

Financial Shares

Haitong Securities gained 2.6 percent in Hong Kong and 1.6 percent in Shanghai. Citic Securities Co., the biggest listed mainland brokerage, surged 2.3 percent. ICBC added 1.4 percent in Shanghai and climbed 1.8 percent in Hong Kong. Ping An Bank Co. advanced 1.6 percent in Shenzhen.

Consumer prices rose at the same pace as in June and met the median estimate in a Bloomberg News survey of economists, according to the National Bureau of Statistics. Factory-gate prices fell 0.9 percent, matching projections and extending the longest stretch of declines since 1999.

China loosened monetary conditions last quarter at the fastest pace in almost two years, a Bloomberg LP gauge showed, testing the waning effectiveness of credit in supporting economic growth.

Economic Data

Bloomberg’s new China Monetary Conditions Index -- a weighted average of loan growth, real interest rates and China’s real effective exchange rate -- rose 6.71 points to 82.81 in the second quarter from the previous three months. That’s the biggest jump since the July-September period of 2012, with May and June’s numbers the first back-to-back readings above 80 since January 2012.

China will release data on industrial production, investment and retail sales on Aug. 13. Factory output probably rose 9.2 percent in July from a year earlier, while retail sales growth accelerated to 12.5 percent from 12.4 percent a month earlier, according to median estimates in a Bloomberg survey.

“China’s data showed inflation is still under control so people are not worried about any hard landing and they’re generally optimistic,” said Francis Lun, Hong Kong-based chief executive officer at Geo Securities Ltd. “China can add more stimulus.”

The Shanghai Composite is valued at 8.2 times 12-month projected earnings, while the H-shares gauge trades at 7.3 times, according to data compiled by Bloomberg.

Developers Rally

Vanke, China’s nation’s biggest listed property company, added 1.8 percent in Shenzhen and surged 3.9 percent in Hong Kong. Shenzhen plans to make small adjustments to property policies and scrap limits on home prices, the China Times reported, citing an unidentified person familiar with the matter. New home prices dropped in the most cities in two years in June, according to JPMorgan Chase & Co., prompting some Chinese cities to start relaxing real-estate curbs to stimulate the market.

Hong Kong developers rallied after the city’s existing home prices reached a record as low interest rates and increasing transaction volumes lured buyers deterred by last year’s cooling measures. Prices rose 0.37 percent in the week ended Aug. 3, surpassing the last record reached in March 2013, according to a weekly index compiled by Centaline Property Agency Ltd.

Property Shares

Henderson Land, a Hong Kong builder controlled by billionaire Lee Shau-kee, gained 4.8 percent. Sino Land Co. advanced 2.7 percent. Wharf Holdings Ltd., a commercial landlord, gained 1.4 percent after first-half investment property business revenue climbed 19 percent and the company said it planned to buy Wheelock & Co.’s unit for HK$2.69 billion ($347 million). Wheelock added 1 percent.

WH Group Ltd., the world’s biggest pork producer, rose 4.7 percent after UBS AG recommended buying the stock in new coverage. The shares will be added to FTSE All-World Index effective tomorrow, the index compiler said on Aug. 5.

Tencent Holdings Ltd., Asia’s largest Internet company, gained 1.9 percent before reporting earnings this week.