China’s stocks rose for the first time in three days, led by developers and steelmakers, as the nation’s slowing economy fuelled speculation the government will ease lending curbs and delay raising interest rates.
China Vanke Co. gained to a one-week high after Sina.com reported that weekly new home transaction volumes in Shenzhen jumped. Baoshan Iron & Steel Co. climbed 1.7 percent as Citigroup Inc. raised its recommendation for raw-materials producers and developers. Shanghai B shares surged as much as 8.9 percent on speculation the foreign-currency denominated shares will be merged with local-currency counterparts ahead of the likely introduction of an international board.
“There isn’t a risk of the government adding further tightening,” said Zhao Zifeng, who helps oversee about $10.2 billion at China International Fund Management Co. in Shanghai. “The government is now watching the effect of all those measures that have been put in place. These measures won’t be intensified unless we see a spike in inflation.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, added 10.94, or 0.4 percent, to close at 2,650.31. The Shanghai SE B Share Index, tracking B shares which are traded in U.S. dollars and restricted to overseas investors, gained 5.1 percent to 254.78, the most since Nov. 25. The CSI 300 Index rose 0.5 percent to 2,911.83.
The Shanghai Composite has rebounded 12 percent from this year’s low on July 5 as investors speculated the government would ease restrictions on real estate and allow more lending to counter a weaker economy. That’s pared this year’s loss to 19 percent, after the government increased down-payment requirements on home sales and ordered banks to set aside more deposits as reserves.
The Se Shang Property Index gained 1.4 percent, the most in a week. Poly Real Estate, the second largest, advanced 2.3 percent to 12.59 yuan. Vanke, the nation’s biggest listed property developer based in Shenzhen, rose 4.2 percent to 8.85 yuan. Vanke’s B-shares surged 3.1 percent to 9.60 yuan.
“The market is expecting that B shares will have to be worth more if the government merges them with the A-class shares,” said Xu Guangfu, a Shanghai-based analyst at Xiangcai Securities Co. by phone. “The anticipation is that the authorities will have to deal with the issue of B shares before they introduce the international board” for foreign stock listings. Some B-share companies are trading at a discount of as much as 50 percent to A shares, Xu said.
The B-share gauge has climbed 27 percent in the past 12 months, compared with a 12 percent loss for the Shanghai SE A Share Index. China may allow foreign companies to sell stock in Shanghai next year, Fang Xinghai, director general of Shanghai’s financial services office, said July 8.
Shenzhen’s new home transaction volumes jumped 72 percent last week to 843 homes from the previous week, the most since the end of April, Sina.com reported, citing local government data. Transaction volumes of existing homes rose 41 percent last week from the previous week, according to the report.
China’s property transaction volumes are “picking up” as the nation’s biggest developers including Vanke cut prices on new developments, Michael Klibaner, head of China research at Jones Lang LaSalle Inc., said in an interview. He predicts “mass market” home prices will drop 20 percent this year.
Klibaner said he expects the Chinese government to maintain its current property curbs to clamp down on speculation. The government may allow more bank lending to first-time homebuyers as the economy slows, he said in an interview in Shanghai.
Chinese officials are likely to “tolerate” banks breaching the nation’s 7.5 trillion yuan ($1.1 trillion) loan target for 2010 to sustain growth as the economy cools, Societe Generale SA said.
The government may allow a “drift upwards,” Hong Kong- based economist Glenn Maguire said in a phone interview today. He said there’s a 60 percent likelihood of this happening, given “the moderation in the growth momentum in recent months.”
Maguire saw a 50 percent chance of the government officially mandating a higher lending target. This would happen “if the economic situation slides further and faster,” he said.
China’s economic expansion eased to 10.3 percent in the second quarter from 11.9 percent growth in the first quarter. Reports this week will probably show U.S. home sales fell and second-quarter gross domestic product grew 1.4 percent, less than previously estimated, according to Bloomberg surveys of economists. The U.S. accounts for about 20 percent of China’s exports.
China’s stocks will benefit from slowing global growth and an extended period of low interest rates as a weaker dollar pushes investors to seek higher returns in emerging markets, according to Citigroup.
The brokerage raised its recommendation for property stocks and raw-materials producers to “neutral” from “underweight,” according to a report by analysts led by Minggao Shen.
Baoshan Steel, China’s biggest publicly traded steelmaker, gained 1.7 percent to 6.48 yuan, the biggest advance since Aug. 16 and reversing an earlier 1.6 percent loss. Angang Steel Co. rallied 1.8 percent to 8.44 yuan.
TPG Inc., the buyout firm run by David Bonderman and Jim Coulter, will set up a 5 billion yuan fund with Chongqing to invest in private companies as the country boosts development of inland provinces.
China is promoting development in its western regions to expand the role of domestic demand in the economy as the nation seeks to reduce the reliance on exports after the global crisis hurt trade. Premier Wen Jiabao said last October that the government is willing to cooperate with other countries to spur growth in western China.
The following companies were among the most active in China’s markets. Stock symbols are in brackets after companies’ names.
Aluminum Corp. of China Ltd. (601600 CH), the biggest producer of the metal known as Chalco, dropped 1.2 percent to 10.27 yuan. Chalco posted a second-quarter loss of 96 million yuan, the fourth loss in six quarters, according to Bloomberg calculation derived from the company’s half-yearly statement. First-half profit was 530.6 million yuan, compared with a loss of 3.5 billion yuan a year ago.
COFCO Property (Group) Co. (000031 CH) added 2.1 percent to 7.82 yuan after the developer reported first-half net income of 73.7 million yuan, compared with a net loss of 3.4 million yuan a year earlier.
Henan Zhongyuan Expressway Co. (600020 CH), a toll-road operator, advanced 5.7 percent to 4.05 yuan, the biggest gain since Nov. 25. First-half profit rose 57 percent from a year earlier to 357 million yuan, the company said in a statement last night.
ZTE Corp. (000063 CH), China’s second-biggest phone- equipment maker, rose 3.8 percent to 23.58 yuan after saying it plans to enter into forward currency-exchange agreements of as much as $50 million and 20 million euros with banks for hedging purposes.