China's Stocks Advance as U.S. Jobs, Obama Proposal Bolster Export Outlook
Sept. 6 (Bloomberg) -- Mark Konyn, chief executive officer of RCM Asia Pacific Ltd., talks about the outlook for China's stock market and economy. Asian stocks rose, driving the MSCI Asia Pacific Index higher for the fourth consecutive day, as better-than-estimated jobs data in the U.S. eased concern that global economic growth is faltering. Konyn also discusses emerging market stocks and the Hong Kong dollar's peg to the U.S. He speaks with Rishaad Salamat on Bloomberg Television. (Source: Bloomberg)
China’s stocks rose to the highest in four months as Macquarie Securities Ltd. and BNP Paribas recommended shares with large capitalizations and improving U.S. economic data bolstered the outlook for Chinese exports.
Baoshan Iron & Steel Co. climbed the most in nine months after Shenyin & Wanguo Securities Co. said steelmakers may improve their profitability. China Petroleum & Chemical Corp. and coal producer China Shenhua Energy Co. led gains for energy producers after Macquarie said large caps may benefit at the expense of smaller companies. China Life Insurance Co. and Ping An Insurance (Group) Co. advanced at least 2.8 percent after insurers were allowed to diversify their investments.
“The market consensus is that the economy won’t have a double-dip,” said Zheng Tuo, president of Shanghai Good Hope Equity Investment Management Co. “The rally for big-cap stocks reflected the optimism about the economy.”
The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 40.86, or 1.5 percent, to 2,696.25 at the 3 p.m. close, the highest since May 14. The CSI 300 Index added 1.9 percent to 2,975.09.
The Shanghai measure has rebounded 14 percent from this year’s low on July 5 as investors speculated the government would ease monetary policy to spur growth. That’s trimmed 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 to curb asset bubbles.
Large Caps
China’s stocks, the worst-performing major market this year, may be poised for a “significant” rally when the government relaxes its policy tightening measures, according to RCM Asia Pacific.
“Given that investors are so far underweight, it could be a significant move” when the government reverses its lending and property curbs, Mark Konyn, Chief Executive Officer of RCM Asia Pacific, which manages more than $12 billion, said in a Bloomberg Television interview. “You talk about fickleness among investors. China is the prime example, finishing last year, everyone enthusiastic, this year’s been a disaster.”
BNP Paribas recommended China’s large-capitalization stocks, citing “low” valuations, “minimal” earnings risk and “high sensitivity” to an easing in government policy. Large- capitalization stocks may benefit as more shares become tradable on the Shenzhen middle and small cap board a ChiNext in the months ahead, Shirley Zhao and Michael Kurtz, analysts at Macquarie, wrote in a note to clients.
A gauge of energy stocks rose 2.9 percent for the steepest gain among the 10 industry groups in the CSI 300.
China Petroleum, Asia’s biggest oil refiner, also known as Sinopec, added 2.9 percent to 8.55 yuan. Shenhua, the nation’s largest coal producer, gained 3.6 percent to 24.47 yuan. China Coal Energy Co., the second largest, advanced 3.2 percent to 10.08 yuan.
U.S. Economy
The Standard & Poor’s 500 Index rose 1.3 percent on Sept. 3 as a report showed companies in the U.S. added more jobs than forecast in August. Private payrolls climbed 67,000 after a revised 107,000 increase in July that was more than initially estimated, according to Labor Department figures in Washington.
President Barack Obama this week will urge Congress to permanently extend and expand a research and development tax credit to encourage job growth. Obama will lay out the proposal, which would cost about $100 billion over the next decade, in a Sept. 8 speech on the economy in Cleveland, Ohio, according to two administration officials speaking on condition of anonymity before the announcement.
The U.S., the world’s biggest economy, makes up about 20 percent of China’s exports.
Steel Outlook
Baoshan Steel, the listed unit of China’s second-biggest steelmaker, jumped 7.1 percent to 6.98 yuan, the most since Dec. 1. Hebei Iron & Steel Co., the listed unit of China’s biggest steelmaker, gained 6.9 percent to 4.19 yuan. Angang Steel Co. rose 6.3 percent to 8.65 yuan.
Steel prices may rise about 300 yuan ($44.2) a ton within two months, as the government’s push to cut emissions reduces steel supplies and iron ore prices are expected to drop in the fourth quarter, wrote Zhao Xiang’e, an analyst at Shenyin & Wanguo Securities, in a report today. Baoshan Steel may raise October product prices by about 200 yuan, it said.
Hebei, China’s biggest province by steel production, shut 57 steelmaking blast furnaces and production lines from Sept. 4 after local governments restricted power, researcher Mysteel.com said.
China has approved insurers to hold stakes and invest in property assets of privately held companies to reduce investment risks. The rules are aimed at “easing insurers” investment pressure and diversifying risks,” the China Insurance Regulatory Commission said yesterday in a statement.
Insurers Diversify
China Life, the nation’s biggest insurer, added 2.8 percent to 22.81 yuan. Ping An, the second biggest, rose 4.5 percent to 51.06 yuan.
China’s smaller-company stocks slumped on concern the expiration of restrictions on the sale of shares will lead to a jump in supply and that share-price gains have outpaced earnings growth. The ChiNext index of start-up companies dropped 2.5 percent to 1,010.76 in Shenzhen and the Shenzhen index tracking small- and medium-size companies lost 0.3 percent.
“It’s only a matter of time before small caps will drop,” said Li Jun, a strategist at Central China Securities Holdings Co. in Shanghai. “Valuations are too high and that’s not justified by earnings growth.”
Shares of smallcaps worth 91.9 billion yuan will become tradable in November, wrote Nie Qinglian, an analyst at Industrial Securities, in a report dated Sept. 4. That compares with the monthly average of 20 billion yuan for the whole market before November, according to the report.
--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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