China's Stocks Post Longest Stretch of Gains in 5 Months on Policy Outlook

China’s stocks rose for a fourth day, posting their longest stretch of gains since February, on speculation slowing economic growth will prompt the government to relax property curbs and allow for more bank lending.

Angang Steel Co. led advances for steelmakers after the stock was upgraded by Standard Chartered Bank Plc. China Vanke Co. rose the most in almost two weeks after the biggest listed property developer was rated “buy” in new coverage by Citigroup Inc. Aluminum Corp. of China Ltd. added 1.5 percent on the prospect looser monetary policies would spur metal demand.

“Easing monetary policies is a big possibility,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “That’s probably what the government would start to do to counter the economic slowdown.”

The Shanghai Composite Index climbed 27.01, or 1.1 percent, to 2,562.41 at the close, the highest since June 24. The four- day stretch of gains is the longest since the period ended Feb. 12. The CSI 300 Index rose 1.2 percent to 2,781.29.

The Shanghai index has advanced 5.7 percent this week, set for the biggest weekly gain since Dec. 4, on expectations the government will ease tightening measures and boost investment in low-income housing to counter a slowdown in economic growth.

The central bank has raised banks’ reserve requirements three times this year and the government boosted down payments and mortgage rates for multiple-purchases of homes to curb record lending growth and asset bubbles. The Shanghai index has fallen 22 percent this year on concern measures to control real- estate speculation and rising consumer prices will damp earnings.

Citigroup today lowered its full-year global growth forecasts for 2010 and 2011, according to a strategy report. It also cut its outlook for both years’ growth in the U.S., China and emerging markets, the report showed.

Policy Outlook

China’s GDP growth forecast was cut by 1 percentage point to 9.5 percent, Citigroup’s biggest one-month cut in the country’s outlook since late 2001, the report said. The bank said China would grow at an 8.8 percent rate next year, 0.5 percentage points lower than previously forecast.

“What the market is betting now is that the government will allow the current tightening measures to be relaxed going forward,” said Sun Chao, an analyst at Citic Securities Co. in Shanghai.

Deutsche Bank AG economist Jun Ma said the government may only relax its policy tightening measures in the fourth quarter after worsening economic data in the next two to three months.

China’s economic expansion eased to 10.3 percent in the second quarter and industrial production cooled more than forecast in June. Policy makers may loosen some real-estate curbs and approve more infrastructure and investment projects in the fourth quarter as growth slows toward 7 percent before picking up into 2011, Stephen Green, head of China research for Standard Chartered Bank in Shanghai, said July 15.

Steelmakers Rally

Ma, the top-ranked economist in Institutional Investor’s 2010 All-China poll, also said a pull-back in Chinese stocks is likely and investors should consider waiting for a “safer” entry point.

Angang Steel added 2.8 percent to 8.39 yuan. The stock was upgraded by Standard Chartered Bank analysts Wei Ouyang and Yan Chen, who cited a possible earnings recovery in the fourth quarter amid lower iron ore contract prices.

Baoshan Iron & Steel Co., the listed unit of China’s second-biggest steelmaker, gained 0.6 percent to 6.30 yuan. Hebei Iron & Steel Co., the listed unit of the biggest steelmaker, rose 1 percent to 4.06 yuan.

The average spot price for domestic hot-rolled steel sheet yesterday climbed 2.1 percent to the highest since June 30, data from Beijing Antaike Information Development Co. showed.

Bond Signals

Aluminum Corp. of China, the listed unit of nation’s biggest maker of the lightweight metal, rose 1.5 percent to 9.54 yuan. Zhuzhou Smelter Group Co., China’s biggest producer of refined zinc, advanced 3.1 percent to 9.61 yuan.

A gauge of property stocks in the Shanghai Composite gained 1.3 percent. Vanke rose 2.6 percent to 7.95 yuan after Citigroup said the “restructured, refocused” company is already delivering “notably improved” growth momentum. Poly Real Estate Group Co. rose 4.5 percent to 12.35 yuan.

China bond investors are betting government measures to cool property prices won’t hurt real estate companies as money managers and economists warn of a crash that may slow the economy leading global growth.

Yields on China developers’ local-currency notes fell to the lowest ever relative to government debt this year, with the spread on Poly Real Estate’s 4.3 billion yuan ($634 million) in 7 percent bonds due 2013 narrowing to a record 95 basis points on July 8, according to Shanghai Stock Exchange prices on Bloomberg. The spread tightened by 68 basis points to 138 basis points since the end of 2009.

Property Tax

China plans to start implementing a property tax in 2012 on a trial basis, the 163.com website run by Netease said in a report today, citing a finance ministry meeting in Beijing.

The issue will be one of the ministry’s top tasks in 2012, the report said, without citing any official by name. Due to the difficulties of implementing such a levy nationwide, the tax may be rolled out first in a few cities, the report said without naming them.

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

CSG Holding Co. (000012 CH) rose 3.1 percent to 11.85 yuan, the highest since May 28. The glassmaker said first-half net income increased 144 percent from a year earlier to 636 million yuan.

Wanxiang Qianchao Co. (000559 CH), the listed unit of China’s largest auto-parts maker, climbed 5.4 percent to 11.59 yuan, the most since June 9. The company said first-half net income probably increased 91 percent from a year earlier.

Xiamen Tungsten Co. (600549 CH) added 3.1 percent to 20.34 yuan after announcing its first-half profit surged 1,276 percent from a year ago.

Your-Mart Co. (002277 CH) jumped 6.8 percent to 22.36 yuan, the highest price since the stock began trading July 2009. Shenyin & Wanguo Securities Co. raised the retailer’s earnings forecast for 2010 by 6.8 percent to 0.63 yuan and that for 2011 by 11 percent to 0.84 yuan, analysts Jin Zefei and Zhou Jiamin wrote in a report today, citing increasing purchasing power in southern Hunan province.

--Zhang Shidong. Editor: Allen Wan, 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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