China Stocks Rise, Capping Biggest Weekly Advance This Year; Miners Climb

China’s stocks rose, with the benchmark index capping its biggest weekly gain this year, on speculation the government will wind back tightening measures that helped make the gauge Asia’s worst performer in 2010.

The Shanghai Composite Index climbed 2.3 percent. Poly Real Estate Co. paced gains by developers after the central bank said it will stick to a moderately loose monetary policy and the Oriental Morning Post reported some Shanghai banks have resumed lending to third-home buyers. PetroChina Co. and Yanzhou Coal Mining Co. led an advance by energy producers, China’s worst performers this year.

The Shanghai index tumbled 27 percent in the first half of 2010 on concern government efforts to curb property speculation will slow the world’s third-largest economy. The gauge climbed 3.7 percent this week as technical indicators signaled the market was “oversold,” according to CIMB Group Holdings Bhd. and Nomura Holdings Inc.

“There are some expectations that the government may ease its tightening measures such as those for mortgages,” said Wang Zheng, a fund manager at Jingxi Investment Management Co. in Shanghai. “Stocks have also declined too much.”

The Shanghai Composite, which tracks the bigger of China’s stock exchanges, climbed 55.77, or 2.3 percent, to close at 2,470.92. The weekly gain is the most since the final week of 2009, when the gauge advanced 4.3 percent. The index traded at 17.6 times reported earnings at the end of last week, the lowest in 18 months.

The CSI 300 Index, measuring yuan-denominated stocks, or A shares, in Shanghai and Shenzhen, rose 2.8 percent to 2,647.10.

Monetary Policy

Money and loan growth was “reasonable” in the first six months and liquidity in the banking system “basically appropriate,” the central bank said yesterday after its second- quarter monetary policy meeting.

The central bank dropped a reference in the previous statement, in March, to the management of loan and credit growth being an “arduous task.” A reduced trade surplus this year and bank quotas limiting lending have helped officials to begin reining in liquidity, helping to contain inflation risks.

Poly Real Estate, China’s second-largest developer by market value, advanced 3.8 percent to 11.42 yuan, paring an annual loss to 34 percent. China Vanke Co., the biggest, rose 2.4 percent to 7.24 yuan. Gemdale Corp., the fourth largest, added 2.5 percent to 6.52 yuan.

Some Shanghai-based commercial banks have resumed providing loans for third-home purchases and have eased lending policies for second-home purchases, the Oriental Morning Post reported.

Bank Comments

Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd. denied the report. Spokespeople for the three banks said in interviews they are complying with a government order to freeze lending for third homes.

PetroChina, the nation’s biggest oil company, rose 1.5 percent to 10.53 yuan. Yanzhou Coal, the listed unit of China’s fourth-biggest coal miner, jumped 6.5 percent to 16.93 yuan. An index tracking energy producers surged 4.9 percent, the most since Feb. 3 and the biggest gainer among the 10 industry groups on the CSI 300. The energy index is the worst performer this year.

A Chinese business climate index rose to 135.9 in the second quarter from 132.9 in the first quarter, according to a statement released by the National Bureau of Statistics.

Stocks have fallen in 2010 even as companies forecast higher earnings. 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 July 6.

‘Soft Landing’

“The economy is expected to have a soft landing and that won’t cause a big slump in earnings growth,” said Wei Wei, an analyst at West China Securities Co. in Shanghai. “We expect a rebound until the end of the earnings season.”

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. Kenneth Rogoff, the Harvard University professor, said this week China’s property market is beginning a “collapse” that will hit the nation’s banking system.

Technical indicators also signal the rebound may continue. The CSI 300’s daily Moving Average Convergence/Divergence indicator and relative strength index are “showing positive divergence signs since May, signaling an imminent change in the downtrend,” CMIB analysts Nigel Foo and Kong Seh Siang wrote in a report today.

Stocks ‘Oversold’

Nomura Holdings Inc. said this week the CSI 300 is in a “good position” to recover after it touched the bottom band that marked this year’s downward trend.

The CSI 300’s 14-day RSI, a gauge of how rapidly prices gain or decline, suggests Chinese stocks are “oversold,” according to a July 7 report by Nomura analysts Kenneth Chan, Tacky Cheng and Desmond Chan.

China Eastern Airlines Corp., the nation’s second-largest carrier, led gains by carriers after China Business News reported the carrier’s passenger numbers increased 70 percent last month from a year ago.

China Eastern advanced 5.6 percent to 6.77 yuan, the most since April 10. Air China Ltd., the nation’s largest international carrier, rose 3.9 percent to 10.79 yuan. China Southern Airlines Co., the nation’s biggest carrier by fleet size, added 4.1 percent to 6.29 yuan.

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

China North Optical-Electrical Technology Co. (600435 CH) surged the 10 percent daily limit to 12.94 yuan. The company said first-half profit may have jumped more than 50 percent from a year earlier on increased sales.

Northeast Securities Co. (000686 CH) slid 5.1 percent to 23.06 yuan after saying first-half profit fell about 77 percent from a year earlier.

Shandong Lukang Pharmaceutical Co. (600789 CH) advanced 4.8 percent to 8.06 yuan after the Chinese drugmaker said first-half profit likely rose eight fold.

Shanghai International Airport Co. (600009 CH), the operator of China’s second-busiest airfield, added 3.3 percent to 11.95 yuan. The stock was rated “buy” in new coverage by Goldman Sachs Group Inc. analysts Ronald Keung and Tom Kim, who said they “most preferred” the company among Chinese airports.

Tangshan Jidong Cement Co. (000401 CH) rose 3.1 percent to 16.60 yuan after saying its first-half profit will as much as double from a year ago on higher sales.

--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

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.