China Stocks Gain for Second Day; Consumer Companies Climb, Banks Decline

China’s stocks rose as consumer companies gained on speculation earnings will withstand a slowing economy, overshadowing losses by banks as Agricultural Bank of China Ltd. sought funds in what may be the world’s largest initial public offering.

Appliance maker GD Midea Holding Co. and Wuxi Little Swan Co. climbed more than 5 percent after saying net income may have climbed in the first half. Huaxia Bank Co. paced losses by lenders. Agricultural Bank’s IPO is raising $19.2 billion, according to people with knowledge of the pricing for Hong Kong and Shanghai. Industrial & Commercial Bank of China Ltd. declined after Ming Pao Daily News said the lender plans a rights offer.

“Consumer stocks are less exposed to the economy in terms of profitability and offer a good hedge against a slowdown,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “Fundraisings by the big banks introduce a lot of supply at a time when sentiment is weak.”

The Shanghai Composite Index, Asia’s worst performer this year, added 11.69, or 0.5 percent, to close at 2,421.12, after changing direction at least 10 times. The measure rallied 1.9 percent yesterday on speculation losses were excessive as valuations fell to the lowest relative to earnings in 18 months.

The CSI 300 Index, tracking yuan-denominated A shares in Shanghai and Shenzhen, gained 0.7 percent to 2,580.48 today, led by a measure tracking consumer discretionary stocks.

China’s national pension fund bought more than 2 billion yuan ($295 million) of A shares recently, the Securities Times reported today, citing unidentified people familiar with the situation and without giving a timeframe.

Appliance Makers

GD Midea rallied 5.6 percent to 12.04 yuan, the most in six weeks, after saying first-half net income may as much as double from a year earlier. Wuxi Little Swan Co., a manufacturer of household appliances, climbed 7.4 percent to 13.80 yuan. The company said net income in the six-month period may increase as much as 150 percent.

Other appliance makers also gained. Gree Electric Appliances Inc., the largest maker of home air-conditioners, jumped 5.5 percent to 20.09 yuan, the most since Nov. 30. Qingdao Haier Co. the manufacturer of air-conditioners and refrigerators advanced 4.3 percent to 20.33 yuan.

Around 54 percent of A share companies’ first-half guidance indicate year-on-year net income growth of more than 50 percent, UBS AG’s Hong Kong-based strategist John Tang wrote in a report yesterday.

Share Sales

The Shanghai Composite has slumped 26 percent this year on concern government efforts to curb inflation and property speculation will slow growth at the world’s third-largest economy. Shares have also fallen as China’s biggest banks announced as much as $54.5 billion in fundraising after extending record loans last year.

Agricultural Bank, the nation’s largest lender by customers, is selling 22.2 billion shares in Shanghai at 2.68 yuan each, the top of its range, according to three of the people, who declined to be identified before a public announcement is made. The Beijing-based company priced its Hong Kong shares at HK$3.20 apiece yesterday after the stock was offered for HK$2.88 to HK$3.48, two people said.

Huaxia Bank slid 0.5 percent to 10.90 yuan. Shanghai Pudong Development Bank Co., the Chinese partner of Citigroup Inc., lost 0.5 percent to 13.76 yuan.

ICBC, the nation’s biggest bank, slipped 0.5 percent to 4.12 yuan. The bank plans to raise as much as 45 billion yuan in a rights offer, Hong Kong-based Ming Pao Daily News said. A Beijing-based press official from ICBC, who didn’t want to be identified, declined to comment.

Property ‘Collapse’

“Banks have been ignoring the weak market sentiment and keep announcing big fundraising plans,” said Wei Wei, an analyst at West China Securities Co. in Shanghai.

Kenneth Rogoff, the Harvard University professor, said yesterday China’s property market is beginning a “collapse” that will hit the nation’s banking system. Home prices are set to fall as much as 20 percent in a “healthy” correction, Michael Klibaner, head of China research at Jones Lang LaSalle Inc., said in a Bloomberg Television interview today.

Authorities intensified a crackdown on property speculation after announcing the economy expanded at an 11.9 percent annual pace in the first quarter, the most since 2007.

The People’s Bank of China signaled it remains focused on reining in liquidity and stemming inflation.

Excess Liquidity

A surfeit of cash is still the main problem facing monetary policy, and PBOC should at an appropriate time use interest rates to address it, Yang Guozhong, director of the bank’s business management department, wrote in China Finance magazine. Zhang Jianhua, director of the research bureau, wrote in the China Daily that the PBOC must “deal with” excess liquidity.

Investors opened 5.1 percent fewer accounts to trade Chinese stocks during the week ended July 2 as compared with a week earlier, according to the China Securities Depository and Clearing Corp. Investors opened 277,833 accounts during the week, according to the clearing house.

The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.

Companies based in the western region: Xinjiang West Construction Co. (002302 CH) surged the 10 percent daily limit to 19.09 yuan. Xinjiang Urban Construction Co. (600545 CH) climbed 4.8 percent to 11.34 yuan. President Hu Jintao said the government aims to make the nation’s western regions a base for the energy, resource processing, equipment manufacturing and strategic emerging industries, the China News Service reported.

Changsha Zoomlion Heavy Industry Science and Technology Development Co. (000157 CH), China’s second-biggest maker of concrete-handling machinery, jumped 10 percent to 18.84 yuan. The company said first-half net income may as much as double.

Jiangsu Sainty Corp. (600287 CH) jumped the 10 percent daily limit to 6.83 yuan after the company said it may post a profit for the first half compared with a loss a year ago.

Shandong Dong-E E-Jiao Co. (000423 CH), the traditional Chinese herbal medicine maker, added 2.6 percent to 36.05 yuan after saying its first-half profit may as much as double to 317.6 million yuan.

--Zhang Shidong. Editors: Richard Frost, Linus Chua

To contact Bloomberg News staff for this story: Zhang Shidong in Shanghai at +86-21-6104-7014 or szhang5@bloomberg.net

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