China Stocks Rise as Gold, Coal Producers Rally as Hedge Against Inflation

China’s stocks rose to a three-month high on speculation resource companies will benefit as inflation quickens, with gains for gold and coal producers overshadowing declines by property developers.

China Shenhua Energy Co. climbed to the highest since May, leading gains among coal producers, on speculation the nation’s biggest producer of the fuel will receive an asset injection from its parent company to become more competitive. Shandong Gold Mining Co. added 1.8 percent as bullion prices rose. China Vanke Co. and Poly Real Estate Group Co. paced declines for developers after the Oriental Morning Post reported Shanghai’s land administration may raise the cost of owning property.

“Inflationary expectations are usually a catalyst for resource stocks, which could be a haven for money seeking protection against higher consumer prices,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “It’s not time for the government to ease its monetary policies now because there’s uncertainty over consumer prices.”

The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 19.78, or 0.7 percent, to 2,686.08 as of 1:09 a.m. local time, set for the highest since May 14. The CSI 300 Index added 0.7 percent to 2,958.39.

The Shanghai gauge has rebounded 14 percent from this year’s low on July 5 as investors speculated the government would ease property curbs and allow more lending to counter slowing growth. That’s pared this year’s loss to 18 percent, after the government increased down-payment requirements on home sales and ordered banks to set aside more deposits as reserves.

Inflation Outlook

Rising vegetable prices are increasing inflationary pressure and reducing the likelihood the government will ease monetary policy in the near term, Jun Ma, chief economist for Greater China at Deutsche Bank AG, said in e-mailed comments.

China’s State Council, or cabinet, urged local governments to increase vegetable supplies to stabilize prices, according to a statement on the government’s website yesterday. The nation has seen large price swings in recent years and this year’s floods have disrupted supplies, according to the statement.

China’s consumer prices rose 3.3 percent in July from a year earlier, the highest in 21 months, as floods destroyed crops, increasing food costs, according to the statistics bureau

Consumer prices may rise above 4 percent this month, said Ma, ranked first in Institutional Investor’s 2010 All-China poll The government’s full-year inflation target is 3 percent.

“This policy implication will continue to cap the equity market’s performance for a while,” Ma said in the e-mail.

Gold Producers Rise

Shandong Gold, the country’s third-largest bullion producer, added 1.8 percent to 43.45 yuan. Zhongjin Gold Corp., the second largest, rose 0.7 percent to 35.60 yuan.

Gold futures for December delivery added 0.3 percent to close at $1,231.40 an ounce yesterday in New York, capping a third day of gains.

A measure of energy stocks in the CSI 300 rose 2.9 percent today, the most among the 10 industry groups. Shenhua, the nation’s largest coal producer, climbed 5 percent to 25.61 yuan, heading for the highest close since May 5.

“There’s speculation that Shenhua may get assets injected by its parent,” said Li Dagang, a coal analyst at Essence Securities Co. in Shanghai. “The company’s recent management change also sparked market speculation that the asset injection may come soon.”

Three vice presidents were removed from their posts, Shenhua said in a statement last week. Huang Qing, Shenhua’s board secretary, and Cheng Zhong, director of the news office at Shenhua Group Corp., the parent company, couldn’t be reached for a comment in their offices.

New Assets

Other coal producers may follow with asset injections to expand as the government forces industrial mergers to reduce overcapacity. China Coal Energy Co., the nation’s second largest, rose 3.2 percent to 10.30 yuan. Datong Coal Industry Co., the third biggest, gained 2.6 percent to 17.31 yuan.

A gauge of property stocks slid 1 percent today for the steepest decline among the five industry groups in the Shanghai Composite.

Vanke, the nation’s biggest listed property developer, dropped 0.7 percent to 8.73 yuan. Poly Real Estate, the second largest, lost 2.5 percent to 12.82 yuan. Gemdale Corp., the fourth largest, slid 0.9 percent to 6.84 yuan.

Shanghai may raise the cost of owning property to curb speculative demand, according to a report from the city’s Ministry of Land and Resources branch published in the Oriental Morning Post. The government may use a mix of financial, taxation and land measures, it said.

Measures to rein in property speculations this year include higher down-payment and mortgage rates for multiple-home buyers and instructions for lenders to halt third-home loans in areas with “excessive” price gains.

--Zhang Shidong. With assistance from Winnie Zhu. 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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